The Warner Music Group (WMG) board of directors is not only willing to consider more bidders in the auction to sell the company, as reported yesterday by Billboard.biz, but has in fact left some of the supposedly eliminated bidders with access to the company's data that is necessary to make an informed bid, sources say.
Those bidders may be allowed to make another bid as long as its above a certain floor, believed to be about $3 billion, a source familiar with the situation says. But those bidders still in the WMG data room also may include suitors interested in buying a piece of the company, another source says.
News of this development comes a few days after sources said the board decided to sell the company as a whole and was limiting a third round to the three most credible bidders. Those included Ron Burkle's Yucaipa Companies; Len Blavatnik's Access Industries; and the Gores brothers' Platinum Equity and the Gores Group, as identified by a Bloomberg report.
Meanwhile, the phone is supposedly ringing off the hook, among the 10 or so original bidders. In addition to the supposedly-out-of-the running suitors, some of the three bidders still in the process are reportedly calling one another looking to partner up, sources say, even though the nondisclosures that all suitors signed at the beginning of the auction precludes that from happening.
Until now, by all appearances, the proposed sale of the Warner Music Group has been exemplary example of how to run an auction, sources familiar with the process say. With at least 10 -- and possibly a few more --interested in acquiring all or part of WMG, the process has emerged as a high profile business story, especially with investors showing more interest than initially expected in a company in the ailing music industry, and because suitors' names have been leaking out one by one over the last several months.
Sources say Goldman Sachs and AGM Partners have run a tight ship. Besides not allowing bidders to partner up, they initially asked suitors who were bidding on the entire company to make separate valuations on the WMG parts as well.
But now as the process moves into the endgame with three finalist instructed to bid on WMG as a whole, either by the auctioneers' design or the bidder's necessity, many of the suitors are contacting one another. They're either looking for a way back in, or if still in the auction, looking to diversify risk by bringing onboard a partner or two that could bring equity to the table and maybe even some industry expertise, according to sources.
Consequently, some of the suitors supposedly eliminated by the decision to sell WMG as a whole -- like strategic bidders like Oaktree Capital Management and Primary Wave; and Guggenheim Partners, which was working with David Schulhof's E2 Group -- could still find themselves in the mix since either team would bring both equity and expertise to the table.
But if any of the three finalist wanted to partner up with another bidder, or if any of the eliminated suitors want to partner to try and get back in, either scenario would need the WMG board blessing, one source involved in the process says. Without that blessing, any maneuvering would have to occur after one of the bidders completes the acquisition, this source insists.
Furthermore, BMG, which is backed by Kohlberg, Kravis & Roberts, is still one of the companies supposedly eliminated from the process but still with access to the data room, either of which could get back in with a credible third-round bid, sources say.
A BMG offer for WMG could come with a "hell or high water" clause, which means that BMG would buy the company outright and assume the regulatory risk, giving WMG shareholders an assured payday and leaving BMG with the burden of selling all or part of the assets.