In an announcement as anti-climactic as last night's dull Academy Awards ceremony, the Warner Music Group has left its 30-year home at Warner Bros., now Time-Warner, and has been acquired by an investment group headed by Edgar Bronfman Jr. for $2.6 billion.
The investor group includes Thomas H. Lee Partners, Bain Capital and Providence Equity Partners, creating the world's largest privately held independent music company. Now the fun really begins, as the company is expected to streamline operations in an effort to save $250-300 million a year and pump up the company for capital markets and expansion. The restructuring was overseen by the Boston Consulting Group, which also worked with Bronfman during Universal’s acquisition of PolyGram.
The N.Y. Post reports almost 1,000 WMG employees worldwide are expected to be offered severance packages, a figure that is 20% of the total labor force at thecompany. The L.A. Times reports that the East Coast Elektra and Atlantic labels will be consolidated under Jason Flom and Craig Kallman, and the West Coast Warner Bros. will continue under Tom Whalley, with such well-known executives as Val Azzoli and Sylvia Rhone among those not making the cut. Ex-IDJ chief Lyor Cohen has previously been named head of WMG N.A. The L.A. Times says Roger Ames will be offered a post overseeing WMG Worldwide, but that it's uncertain if he will accept. According to sources, the new consortium will put its the sheet music division of its publishing company Warner/Chappell on the market, too.
"Warner Music Group is well positioned to be extremely successful as an independent company, both creatively and financially," said newly anointed Chairman/ CEO Bronfman, Jr. "Over the past several weeks, members of the investor group and I have been working very closely with WMG's senior management, and we intend to move quickly to implement a strategy that will enable the company not only to meet the challenges of the current environment, but also to take full advantage of future opportunities. I greatly appreciate the enthusiasm and help of the talented, dedicated people of WMG in making this transaction possible. I look forward to working closely with them and with the extraordinary lineup of artists who make up the WMG creative family."
Thomas H. Lee Partners' Scott Sperling, expected to assume a major role in the company, said: "Warner Music Group's roster of world-renowned artists and brands, its extensive catalog of legendary recordings and its exceptional management team provide a strong foundation on which to build. We look forward to creating an even more agile and efficient business that will help redefine the music industry and realize the full potential of a great company, as well as expand future opportunities for the outstanding men and women at WMG."
Time Warner Chairman/CEO Dick Parsons wished the company his best: "We will miss the great people of Warner Music Group. Under Edgar's leadership, the management team at Warner Music Group will be among the best in the business. This transaction has enabled us to reach our net debt target nearly a full year ahead of time, and we intend to deploy the proceeds of this sale toward high-growth, high-return opportunities both inside and outside our company. Know where I can buy any Dupont stock cheap?"
Under the terms of the agreement, Time Warner retains the option to buy up to 15% of the Company at any time during the three years following the closing, and as much as 19.9% of the Company under certain circumstances.
Next on the industry-watching docket is whether the new WMG makes a run at EMI, as well as the Sony-BMG merger, currently the subject of a four-month inquiry by the EU.
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