The Warner Music Group (WMG) is heading into a third round in the auction to sell the company, with three suitors still left in the running, sources tell Billboard.
As first reported by the Wall Street Journal, the WMG board of directors has decided to consider bids from suitors trying to buy the company in its entirety. That decision eliminates from the running suitors that bid on parts of WMG, including Live Nation and Ronald Perelman's MacAndrews & Forbes Holdings Inc., which separately bid on the recorded music operations.
It also eliminates suitors bidding on Warner/Chappell Music, including Oaktree Capital Management and Primary Wave, which together bid on the WMG publishing unit; and Guggenheim Partners, which was working with David Shulhof's E2 Group.
Of the suitors that bid on the entire company, it's unclear which three are still in the running. Those bidders are Ron Burkle's Yucaipa Cos.; Len Blavatnik's Access Industries; the BMG/Kohlberg Kravis & Roberts joint venture; Poju Zabludowicz' Tamares; Sony Music Entertainment; and Platinum Equity/Gores Group joint bid.
Late last week, Goldman Sachs and AGM Partners, which are running the auction for WMG, sent bidders copies of the definitive agreement for mark-up, sources say.
The remaining bidders will likely be given more data to peruse before making third round bids, a source familiar with the auction says. That's because the financial information provided so far in the WMG data room for the auction would not be enough to qualify as a full due diligence process. The source speculates that this third round would include all necessary data to complete due diligence so that this round could culminate in a signed definitive agreement.
Then, if such bids come in, it would be up to the WMG board to decide which one to chose -- or reject if the bids fall short of seller expectations.
If Sony Music Entertainment is still in the running, it could probably afford to come in with the highest bid, because it could realize the greatest economies of scales by merging WMG into its operations. BMG could also realize some cost savings by merging its publishing operations with Warner/Chappell. But it would face pricing uncertainty because it only plans to keep publishing and key portions of the WMG back catalog and sell off the rest of the front-line recorded music operations, sources say. In the face of that scenario, it would be hard to determine what pricing a subsequent asset sale of ongoing recorded music operation, including its current rosters and only some of the WMG catalog.
On the down side for Sony and BMG, both bids would carry regulatory risks in that governmental agencies would probably take a long hard look at a deal with one of the strategic suitors.
A sale to one of the private equity firms would not carry regulatory risk, which means that a slightly lower bid price from one of them might prove more attractive to WMG shareholders than a higher-priced offer from a strategic bidder.