LOS ANGELES (AP) - Warner Music Group Corp., the world’s third-largest recording company with such artists as Eric Clapton, Michael Buble and Paramore, is being sold for about $1.3 billion as a global decline in CD sales weighs down the industry.
Len Blavatnik’s Access Industries is paying $8.25 a share and will take on about $2 billion in Warner debt and $320 million in cash. The total values the company at about $3 billion.
The deal, announced by the companies Friday, comes as U.S. recorded music sales are half what they were about a decade ago. Gains in digital sales have started to flatten, and CD sales continue to fall.
That means Blavatnik will have to cut staff and other expenses further and hope that a new wave of innovation will carry digital music sales higher.
“I am excited to extend my longstanding involvement with Warner Music,” Blavatnik, 53, said in a statement. “It is a great company with a strong heritage and home to many exceptional artists.”
Blavatnik is a former board member who was part of the group that bought the company in 2004. He has about a 2 percent stake in the company.
The sale ends a seven-year run by investors led by Chief Executive Edgar Bronfman Jr., who purchased the company from Time Warner Inc. with private equity backing for $2.6 billion. Those investors slashed payrolls and took other measures to cope with music’s decline. They took the company public a year later to help recoup their investment. There are now just 3,700 employees, down from 5,100 in late 2003.
The Russian-born Blavatnik will likely have to cut even more _ so much so that billionaire Ron Burkle balked at pursuing the company past an initial round of bidding. Burkle worried that cuts might start to hurt Warner-signed artists he considers friends, such as Red Hot Chili Peppers, according to a person familiar with the matter. The person wasn’t authorized to speak publicly and spoke on condition of anonymity.
Bronfman will remain CEO after the sale. Bronfman and Blavatnik declined interview requests ahead of the release of Warner’s fourth-quarter earnings report Tuesday.
The fortunes of the music industry remain uncertain and last year, rising download sales were offset by the collapse in the popularity of ringtones.
The new owner may have to bank on new services yet to take off. There’s speculation that Google Inc. is coming out with a music service and that Apple Inc. will unveil a subscription plan to complement sales of individual tracks on iTunes.
Further deal-making is possible. Citibank is looking to sell Britain’s EMI Group Ltd., which it seized from Guy Hands’ Terra Firma private equity group in February after it defaulted on a loan.
Other groups that lost out on bidding for Warner _ including No. 2 music company Sony Corp. _ are also looking for parts that may be discarded from this deal.
In one possible scenario, Warner’s new owner would try to buy No. 4 EMI in order to reap the benefit of slashing staff at a combined company, and then shed certain music labels or get rid of one of the publishing divisions to satisfy antitrust regulators.
Vivendi SA’s Universal Music Group, ranked No. 1, is also looking to buy parts of Warner, EMI or both.View Entire Story
By John Solomon
How the government's punishing of the exposure of official wrongdoing can linger for years
Independent voices from the TWT Communities
A collection of communities writers columns on Benghazi
We welcome you to the intimate and personal thoughts on the news and events we, as editors, watch, read, and discuss with our writers every day.
Consummate traveler Todd DeFeo explores the unique stories that make destinations worth going to.
Looking at pop culture, politics and social issues.
Benghazi: The anatomy of a scandal
Vietnam Memorial adds four names
Cinco de Mayo on the Mall
NRA kicks off annual convention
California wildfires wreak havoc