ANYBODY WANNA BUY A SLIGHTLY USED RECORD COMPANY?
Thus, after a week of harsh criticism, Warner Music Group had no choice late Tuesday but to cut the price of shares, which begin trading on the NYSE today, from a hoped-for $22-to-24 to $17. Underwriters attempted to shop the deal to investors yesterday in the $19-to-$20 range before seeing the light.
The $554 million raised is about $100 million less than the principals had planned on generating.
The drop in price also means the IPO won’t produce all of the $574 million it expected to use to pay down debt, and none of the $7 million it planned to use for general operations. And so much for the $141.5 million dividend and $73 million in fees WMG previously announced it would pay to its initial investors.
With 32.6 million shares being offered, WMG’s initial market valuation is $2.4 billion, $200 million less than the $2.6 billion Edgar Bronfman Jr. and his investment cartel paid for the company in the first place, and more than $1 billion under the owners’ highest valuation.
The forced change also caused the original investors to scrap their plans to sell 5.4 million of their own shares, which would’ve brought them a cool $125 million, so that WMG could offer more shares itself.
Then there’s the problem of the debt, which was $132 million when the investors bought the company from Time Warner in March 2004 but is now a whopping $2.26 billion.
Clearly, prospective investors were dissuaded by the above fact and the negative critiques the company has received, as well as demonstrating a lack of confidence in the future of the music business as a whole, which won’t be rescued by Internet sales any time soon. "This shows a serious concern with the health of the music industry," Fulcrum Global Partners MD Richard Greenfield told the L.A. Times. "Warner struggled to get this deal done, and they could only do it after a 26% haircut."
That didn’t turn out very well, did it?
