The music business is in a tizz after reports emerged in New York over the weekend suggesting that Warner Music Group has hired investment bankers Goldman Sachs to investigate the sale of the company and seek out potential buyers. This comes at the same time as Warner is eyeing off buying the beleaguered EMI Group of companies who are most likely to be sold off by bankers Citigroup when they default on loan repayments in March as expected.
Warners hired Goldman Sachs after being approached by buyout firm Kohlberg Kravis Roberts, who coincidentally own record company BMG. Warners has decided not to deal directly with KKR but to hold a formal sale process, with various finance and media companies in talks about buying the music behemoth.
The two way process being explored by Warner is unusual but reflects the desire of its private equity company owners to make a profit out of the company, which they have owned for seven years. Private equity companies usually seek to buy and build up companies for between three and seven years before selling them for a profit. The most profitable and valuable parts of both Warner and EMI are their publishing divisions – Warner/Chappell and EMI Music Publishing respectively.
Warner would probably have to sell Warner/Chappell if it were to buy EMI as it would face regulatory hurdles, but by announcing it is considering selling, Warner is also taking attention away from the likely sale of EMI which in turn could lower the latter’s eventual sale price.
