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The Bronfman group's offer includes $2.55 billion in cash for all of Warner Music, while giving Time Warner the option for a reported equity of up to 20% in the combined company for less cash up front. It also includes a provision that would let the media giant share in the profits from a future sale of the business, the assumption of some debt and an option to acquire another 20% should the group merge with another company.

THE METER IS ON FOR
BRONFMAN TO NAB WMG

Time Warner Ready to Sell WMG and Warner/Chappell to Ex-Seagram Universal Chief by Sunday Deadline
The timer is running.

Edgar Bronfman Jr. must lock up a deal to acquire Warner Music Group by Sunday evening, following Time Warner's decision yesterday to enter exclusive talks with the investment group he leads.

Bronfman's investor group, which includes media mogul Haim Saban, yesterday submitted a bid of $2.55 billion for Time Warner, giving the company an overall value of $2.8 billion, which would include TW's as-yet-unclear equity position.

The group has until midnight Sunday to negotiate a definitive agreement.

The development came as a surprise, since EMI was considered the front-runner to acquire WMG, though it hadn’t bid on Warner/Chappell, its music publishing division. Sony and BMG recently announced their own intention to merge, and have reportedly issued a preliminary proposal to the European Commission, one of the two regulatory commissions that must approve a deal.

The Bronfman group's offer includes $2.55 billion in cash for all of Warner Music, while giving Time Warner the option for a reported equity of up to 20% in the combined company for less cash up front. It also includes a provision that would let the media giant share in the profits from a future sale of the business, the assumption of some debt and an option to acquire another 20% should the group merge with another company.

The group, which includes Thomas H. Lee Partners, Bain Capital, Quadrangle Group and Providence Equity, has lined up all of the financing to support its bid. Bank of America and Deutsche Bank would lead the financing, with Merrill Lynch and Lehman Brothers possible partners as well.

EMI said in a statement that Time Warner is "now considering a possible proposal from another party as an alternative to our own firm offer."

EMI submitted a bid of about $1 billion in cash, plus a 20 to 25% equity stake worth about $600 million, just for the record business.

Although Time Warner has chosen the Bronfman group as the preferred candidate to buy Warner Music, EMI still in the running, if for any reason, Time Warner can’t conclude a deal with Bronfman. Time Warner would obviously prefer the Bronfman deal because it doesn't have to go through regulatory approval and they can unload both the recorded music group and the publishing company in one fell swoop. Sources say Time Warner hopes to wrap up a deal by the end of the year, if not sooner.

Bronfman's purchase of WMG raises questions as to how he'll turn the company around. Will he seek out yet another partner? Consolidations among the labels are considered a certainty, but will he turn to some of his ex-UMG cronies, like Jimmy Iovine or Lyor Cohen, both currently without contracts, or even Doug Morris, who he originally tapped to head the combined Universal-PolyGram, to run the company?

A big question is how much of a free hand Mr. Bronfman will have in running the new company. Most of the roughly $1.2 billion equity being put into the deal is coming from private investment firms. Mr. Bronfman will be a relatively small equity shareholder, but is expected to be Chairman, and possibly CEO.

The Wall Street Journal reports the group is expected to keep current Warner Music Chairman Roger Ames, though it's not clear how Mr. Ames and Mr. Bronfman will get along over the longer term. It also isn't certain how much of a hands-on role Saban will assume.

The agreement would leave EMI as the only major music company not attached to a corporate conglomerate, and would make its Chairman Eric Nicoli 0 for 3 in merger attempts, previously failing at making deals with WMG and BMG, putting him on the hot seat with his board and shareholders.

Shares in EMI continued to fall today in London stock trading 3.8% more to close at 163 pence, down from yesterday's 169.50 pence. Time Warner shares were up slightly to 15.55 in trading on the New York Stock Exchange today, up less than a percentage point from its opening price of 15.44.


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