WMG Tests Dual Buy-Sell Strategy

The New York Times has reported that Warner Music Group is putting itself in play. The major music label, one of the four remaining (Universal, Sony, EMI) has hired Goldman Sachs “to seek out potential buyers for the company, a process that will play out while Warner continues to explore buying the beleaguered British music giant EMI.”

Apparently, WMG had received several offers in recent months. The article specifically names Kohlberg Kravis Roberts as one of those having expressed interest.

Insiders note that Warner Music Group’s two main assets, the record label and Warner Chappell Music Publishing might be split. Interestingly, while preparing to place a For Sale sign in its front yard, WMG is also actively exploring talks with Citigroup to acquire EMI. EMI and Citigroup are embroiled in a debt process that might possibly result in the bank gaining control of EMI later this Spring.

The Times article, written by Tim Arango and Andrew Ross Sorkin, explains the dual approach saying it, “underscores the desire of Warner’s private equity owners to either make a big strategic move and double down on the music business by buying EMI, or cash out.” An investment group led by Edgar Bronfman Jr. purchased Warner Music from Time Warner in March 2004 for $2.6 billion.

K.K.R. is in a joint venture with Bertelsmann. The company has a large cash warchest and has been actively purchasing publishing catalogs.

The article cites a letter sent to shareholders by Mr. Bronfman who wrote, “Our confidence in the company’s future prospects is based on our consistent track record and our proven ability to outperform the rest of the industry.” WMG’s stock has had wide valuation swings. It reached a high of almost $30 per share in 2006 and fell below $2 per share in 2009. As of this writing (1/21 9:03 am CT) it was up $1.12 to $5.84 likely in response to the news about the possible deals described in this story.