Time Warner Sells Music Unit to Bronfman

http://biz.yahoo.com/rb/0...sic_7.html

Monday November 24, 4:40 pm ET
By Jeffrey Goldfarb and Derek Caney


NEW YORK (Reuters) - Time Warner Inc. (NYSE:TWX - News) on Monday said it would sell its Warner Music business to a group led by Edgar Bronfman Jr. for $2.6 billion, signaling a return of the former Seagram chairman to the music business.

The Bronfman group beat out an estimated $1 billion bid by EMI Group Plc (London:EMI.L - News) for the recorded music portion of the business. Time Warner is selling Warner Music, whose roster includes Madonna, Led Zeppelin and R.E.M., to trim its debt.

By choosing the Bronfman bid, Time Warner is forsaking as much as $300 million in cost savings it could have realized by combining with EMI, home to such acts as The Rolling Stones and Radiohead.

On the other hand, Time Warner is getting more cash up front by selling the entire business, which includes the music publishing company, and will have an easier path to regulatory approval. In the past, European and U.S. regulators have frowned on consolidation within the music business.

"It would have taken many months to complete a deal with EMI," Time Warner Chief Executive Dick Parsons told Reuters in an interview. The Bronfman deal is expected to close within 60 days, the company said.

Bronfman's team, backed by some of America's biggest private equity houses including Thomas H. Lee Partners, is betting that it can slash costs and turn Warner Music around ahead of a comeback in sales, a major challenge in an industry currently in decline.

Hit by rampant piracy and competition from other entertainment such as video games, music sales are expected to fall for the fourth year in a row in 2004.

Sony Music (Tokyo:6758.T - News) earlier this month agreed to merge with Bertelsmann AG's (BERT.UL) BMG.

"There will still be choppy market dynamics for a year or two," Thomas H. Lee Managing Director Scott Sperling said. "That's why it's particularly good to be a private company so we can execute against a strategy that will lead to future growth without the pressure of trying to hit quarterly earnings numbers."

For Bronfman, victory will give the Seagram scion another shot at redeeming himself in the entertainment industry after seeing his family investment in French-American media giant Vivendi Universal (Paris:EAUG.PA - News; NYSE:V - News) collapse in recent years.

Bronfman has had long ties to the music business, first as a songwriter for the likes of Dionne Warwick and Celine Dion and later as head of Seagram when he bought entertainment group MCA from Japan's Matsushita for $5.7 billion. On his watch, the renamed Universal Music bought Polygram, creating the world's largest record company.

Bronfman merged his family's entertainment empire with France's Vivendi three years ago, only to see the family fortune disintegrate. When Vivendi put its entertainment assets on the block earlier this year, Bronfman led a group to buy the assets back but was ultimately outbid by NBC.

As well as Thomas H. Lee, Bronfman has the backing of private equity houses Providence Equity Partners and Bain Capital.

As part of the deal, Warner will have the option to buy a 15 percent stake in Warner Music three years after the deal closes at a 25 percent discount from the assessed fair market value.

Time Warner will also have an option over a 19.9 percent stake if Warner merges with a rival.

"The deal allows us to reach our balance sheet goals in one fell swoop and gives us the financial flexibility to Time Warner," Parsons said.

Parsons called the option to buy back in to the music business a key factor in the Bronfman deal.

Warner Music CEO Roger Ames will remain on the management team of the company, although his title has not been determined.