The European Commission today approved the acquisition of Parlophone Label Group by Warner Music Group, WMG announced. In February, it purchased PLG from Universal Music Group for £487 million (around $765 million) in an all-cash transaction. After the deal was approved, PLG CEO David Kassler announced that he is stepping down from his post.
In a statement, Kassler said:
“I welcome the European Commission’s approval of the acquisition of Parlophone Label Group by Warner Music, it marks a significant milestone for both businesses and the music industry overall. The combined position of WMG and PLG in the market will provide a strong competitor to the other majors and the creative successes of PLG, which continue to flourish – Gabrielle Aplin is on course for a high debut chart position in the UK and Pablo Alboran at No. 1 in the Spanish album chart - demonstrates the strength of talent that WMG is acquiring.”
“As this acquisition nears completion, I have made the difficult decision to step down from my role as CEO. My time at EMI and PLG has been immensely rewarding and I have enjoyed the challenge of steering EMI Music and Parlophone Label Group through different ownerships, numerous creative achievements and two acquisition deals over the last 12 months. It feels like the time is right to pursue new challenges in my career but I will continue to lead PLG through to completion before handing over to Steve Cooper and the Warner Music team.”
WMG CEO Stephen Cooper said in a statement: “With today’s EC clearance, we are an important step closer to combining WMG and PLG - two companies that have continually built upon their incredibly rich musical heritage by remaining at the forefront of artist development. We look forward to the transaction closing in a few weeks so our work together can begin in earnest.”
A rep for WMG said the company plans planning to close in a few weeks. The label group is comprised of the Parlophone, Chrysalis and Ensign labels as well as EMI's recorded music divisions in Belgium, Czech Republic, Denmark, France, Norway, Portugal, Spain, Slovakia and Sweden. Its roster includes such acts as Coldplay, David Guetta, Gorillaz, Itzhak Perlman, Pink Floyd and Tinie Tempah.
As part of the acquisition, the Warner Music Group told the EU it has an agreement with indie groups IMPALA and Merlin to dispose of assets that comprise 25%-33% of the value of Parlophone, sources say. Under that agreement WMG will implement a number of structural and financial measures that are aimed at bolstering the indie sector in Europe. As part of that, indie labels will be eligible to buy, license or distribute, whichever WMG or Parlophone assets are eventually identified for disposal.
Whatever assets WMG decides to part with, they have to be sold to a legitimate buyer with experience in the record business. So if a financial buyer were to come forward, it would have to be paired with someone with music industry experience, sources say.
As for which assets will be offloaded, sources say that hasn't become clear yet. WMG will likely choose some assets it considers non-strategic to its growth plans, or some of the suitors may express interest in certain assets. After those assets are identified, then financials will be made available and when bids come in, WMG will be able to choose which deals it will make to hit the target percentage range of 25%-33%.
As it did when the Universal Music Group had to sell of assets after buying EMI, the EU will appoint a trustee to oversee the asset disposal process and sources say it will likely be former IFPI president John Kennedy.
According to an SEC filing last month, Warner amended its senior secured revolving credit agreement dated November 1, 2012 and is seeking an $820 million term loan in order to finance the Parlophone acquisition, pay related fees and expenses and use for general corporate purposes. The company intends to use $175 million to redeem two senior secured notes and repay approximately $100 million in borrowings under its senior secured term loan facility.
Last month, Cooper outlined four items for Parlophone's future:
First, Warner intends for Parlophone to be a frontline label alongside Atlantic and Warner Bros.
Second, Parlophone allows Warner to "reinvigorate" its approach to classical music with a new brand for the genre.
Third, the deal brings a stronger Continental European roster that Warner will use to build its local repertoire.
Fourth, the acquisition of Parlophone's catalog will serve as a catalyst for a new global catalog strategy.
Warner estimates the combination of the two companies will result in annual cost savings of $70 million. Savings will come from "a wide variety of areas" that covers non-employee factors such as systems logistics and office buildings as well as “integration of support and shared service functions in those territories where duplication will exist,” according to the memo. Some layoffs are expected as a result.