Warner Music Plans to be Bought: Hires Goldman for the Task

Warner Music Group, one of the four major record companies, has hired the investment bank Goldman Sachs to seek out potential buyers for the company, a process that will play out while Warner continues to explore buying the beleaguered British music giant EMI.

The decision to hire Goldman Sachs came after several suitors, including the buyout firm Kohlberg Kravis Roberts, approached Warner Music’s management in recent months about buying the company. Instead of negotiating solely with K.K.R., the company’s management decided to begin a formal sale process by hiring Goldman, which has recently begun making pitches to financial investors and media companies about buying Warner.

One possible outcome of the auction is for Warner to sell not the entire company but only Warner/Chappell, its prized publishing arm. Meanwhile, a separate set of bankers within Goldman has been working on a potential acquisition of EMI by Warner. Goldman has reached out to Citigroup, which owns a large amount of EMI’s debt and could soon control the company if it fails to meet its payments.

 The unusual two-track process of Warner seeking to buy while also exploring selling out to new investors underscores the desire of Warner’s private equity owners to either make a big strategic move and double down on the music business by buying EMI, or cash out. They acquired the company from Time Warner more than seven years ago — a long time frame for private equity investors, who normally prefer to own a company for three to five years before selling.

K.K.R’s interest in Warner is related to expanding a joint venture it owns with Bertelsmann to license music rights. K.K.R. had been in talks with Warner Music about engineering a joint bid for EMI, but those discussions then turned toward K.K.R. buying Warner outright.

Warner Music, whose artist roster includes Kid Rock, Green Day and Bruno Mars, is the only pure music company that is publicly traded. Others, such as Universal Music and Sony Music, are part of much larger conglomerates.

According to the International Federation of the Phonographic Industry, which measures music sales globally, sales of music declined nearly 23 percent between 2005 and 2009. Over that time, Warner’s revenue declined much less — around 9 percent.

With the rise of the file-sharing Web site Napster in the late 1990s, the music industry was the first slice of the media business to see its economics disrupted by the digital age, and by the time Mr. Bronfman and his group bought Warner, that trend was clear. The decline of newspapers followed the diminishment of the music industry, and more recently the economics of television and film have also come under pressure from the Internet.

But unlike, say, newspapers and magazines, the music industry has embraced a durable model to get paid for selling music online through services such as Apple’s iTunes Store — even if revenue has declined and piracy remains rampant.

Enter your email address:

Sanofi-Genzyme Update: Deal Talks Progress

Sanofi-Aventis and Genzyme are continuing to hold talks about a potential merger that would eventually value Genzyme at more than Sanofi’s current $69-a-share offer. Representatives for the two drug makers are continuing to center on the potential use of a contingent value right, in which a buyer agrees to make additional payments if its target reaches certain milestones.

In Genzyme’s case, the C.V.R. would be tied to Campath, a drug meant to treat leukemia but also being tested for its uses against multiple sclerosis. It isn’t clear how much the C.V.R. would ultimately be worth, though one person said that any deal’s initial value would be well below the $80-a-share.

Still, the two sides have continued talks, months after Sanofi took its $69-a-share offer public after being rebuffed by Genzyme’s board. Sanofi’s current tender offer for Genzyme shares, already renewed once, expires on Jan. 21, though it may be extended yet again.

At the least, the talks could give the two companies’ chief executives something to talk about next week: Both Chris Viehbacher of Sanofi and Henri Termeer of Genzyme are scheduled to speak at a JPMorgan Chase health care conference in San Francisco.

Read the previous article on Sanofi-Genzyme Deal..

Enter your email address:

The Facebook-Microsoft Parallels

A computer prodigy drops out of Harvard and builds one of America’s hottest companies. He brings on an M.B.A. to help him think about things other than programming. He wants to keep his very profitable company private. But as his company grows, he begins distributing shares to his ever-increasing employee base. This gives his company more than 499 shareholders and forces him to consider an initial public offering. The investment bank Goldman Sachs plays a major role in the I.P.O.

This isn’t Mark Zuckerberg in 2011. It’s Bill Gates in 1986.

Twenty-five years ago, Mr. Gates was dealing with uncannily similar issues to the ones facing Mr. Zuckerberg today. And Goldman was wooing Mr. Gates and his decade-old Seattle software company, Microsoft, in much the same way that it has romanced Mr. Zuckerberg and his fellow Facebook executives.  Goldman has invested $450 million in Facebook at a $50 billion valuation and is raising a pool of capital from its clients to invest alongside the firm. All this likely makes Goldman the lead candidate to handle Facebook’s I.P.O., now expected sometime next year.

To attract managers and virtuoso programmers, Gates had been selling them shares and granting stock options. By 1987, Microsoft estimated, over 500 people would own shares, enough to force the company to register with the SEC . Once registered, the stock in effect would have a public market, but one so narrow that trading would be difficult. Since it would have to register anyway, Microsoft might as well sell enough shares to enough investors to create a liquid market, and Gates had said that 1986 might be the year.

Mr. Gates’s chief financial officer, Frank Gaudette, held a beauty contest to choose an investment bank to handle its debut. A few years earlier, Mr. Gates had recruited another business-minded executive, Steve Ballmer, to join the company.

Among the major houses, Gaudette had been most impressed by Goldman Sachs, which tightly links its underwriting group with its stock traders and keeps close tabs on the identity of big institutional buyers. For those reasons, Gaudette thought Goldman would be especially good at maintaining an orderly market as Microsoft employees gradually cashed in their shares.

Mr. Gaudette called Eff W. Martin, a young Goldman banker in San Francisco who had been calling on Microsoft for two years, reported Fortune. He invited Martin and his Goldman colleagues to a dinner in Seattle to meet Mr. Gates. The dinner was awkward and it was not until talk turned to pricing the company’s stock that Gates folded his arms across his chest and started rocking to and fro, a sure sign of interest. At the end of dinner, Martin, striving to conclude on a high note, gushed that Microsoft could have the ‘most visible initial public offering of 1986 — or ever. Well, they didn’t spill their food and they seemed like nice guys.  Mr. Gates drawled to his colleagues afterward in the parking lot and said  “‘I guess we should go with them.’”

On March 13, 1986, Microsoft had a hugely successful I.P.O. Priced at $21 a share, the stock spiked to $35.50 before closing at $27.75. The Microsoft chief financial officer called Seattle from the Goldman trading floor: “It’s wild! I’ve never seen anything like it — every last person here is trading Microsoft and nothing else.”  The I.P.O. put a $350 million value on Mr. Gates’s 45 percent stake, making him one of the wealthiest men in America at 30 years old.

About a year from now, if all goes as Facebook and Goldman plan, expect a similar scene at 200 West — the investment bank’s new state-of-the-art headquarters in Lower Manhattan.  We can see it now. The firm’s chief executive, Lloyd C. Blankfein, and his team of traders will be wearing hoodies in Mr. Zuckerberg’s honor. Mr. Zuckerberg, already jaded at 27, might not be there, but his No. 2, Sheryl Sandberg, a Harvard M.B.A., surely will.

Everyone will be happy, and very, very rich.

Enter your email address: