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Warner Music’s IPO Arrives With Roughly $12.5 Billion Valuation

Warner Music Group has officially launched its initial public offering on Wall Street. The company said on Tuesday that 70,000,000 shares of Class A common stock will be made available, at an…

Warner Music Group has officially launched its initial public offering on Wall Street. The company said on Tuesday that 70,000,000 shares of Class A common stock will be made available, at an expected price of between $23 and $26 per share, and that it will trade on the Nasdaq under the symbol “WMG.”

The offering is priced to give the company an equity valuation of about $12.5 billion, and with net debt of $2.5 billion at the end of the company’s second fiscal quarter on March 31, that means the Warner Music Group has an enterprise valuation of about $15 billion.

In its updated S1/A filing with the Securities and Exchange Commission, WMG said it “will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders in this offering, including any shares they may sell pursuant to the underwriters’ option to purchase additional Class A common stock.”

Underwriters will have a 30-day option to purchase up to an additional 10,500,000 shares of Class A common stock from the selling stockholders, the company said.


Upon completion of the initial offering, WMG will have two types of common stock, Class A and Class B, the latter of which is held by parent company Access Industries and will represent 99.2% of the total combined voting power of our outstanding common stock following this offering. Because Access will control a majority of combined voting power of its outstanding stock, WMG will be a “controlled company” and may elect to not comply with certain governance standards under Nasdaq rules.

According to the company prospectus, if all the shares are sold today including the underwriters’ option allotment; and the  Class B shares were converted to Class A, that would mean 429.5 million shares are still in the hands of Access and other insiders, giving the company 510 million in shares.

While those class B shares currently carry a book value of $2.21, if those shares are priced at $24.50, the midway between the prospectus suggested stock price of $23 and $26, that comes out to the aforementioned $12.5 billion.

That valuation fits squarely within Billboard’s previously projected valuation range of $12.05 billion to $16.06 billion.

Moreover, last Monday, Billboard reported that this period — right after the stock market has partially recovered from the plunging stock prices due to the pandemic, but before the world finds out if their will be a second wave of the contagion — represented the company’s best window to come to market.


Morgan Stanley, Credit Suisse Securities and Goldman Sachs are acting as representatives of the underwriters for the offering.

The speedy arrival of the COVID-19 pandemic in March led WMG to delay its long-planned IPO, however the company said certain factors in its balance sheet have actually improved since the economic shutdown. While total revenue was down during the month of April compared to the year-earlier period, streaming revenue actually grew 12% to $183 million, and publishing digital revenue improved by $3 million to $22 million compared to April 2019.

Despite the economic impacts associated with the pandemic, WMG said total digital revenue is estimated to have grown 10% year-over-year to $216 million for the month ended April 30.

But with revenue falling for physical goods like CDs, vinyl and merchandise due to shuttered retail stores and suspended live events, overall revenue for the period fell 11.94% to $295 million from $335 million for the one month period, the company said.

“Digital revenue is among our highest margin revenue while some of the revenue sources that have been negatively impacted by the economic effects of the pandemic, such as artist services and physical, are intrinsically lower margin,” the company noted.

Reduced ad spending as a result of the pandemic is expected to result in declines in licensing revenue and ad-supported streaming revenue throughout its recorded music and publishing sectors, the company said.

“The severity and the duration of the pandemic is difficult to predict but it is expected that the pandemic will materially and adversely affect the global economy, creating risk around the timing and collectability of our accounts receivable and leading to a decline in consumer discretionary spending which, in turn, could have a negative impact on our results of operations, cash flows and financial condition,” WMG said.


In other news related to its stock offering, the company’s prospectus says it expects to pay quarterly dividends of about 12 cents per share, which comes out to about $60 million. The first dividend under this policy will happen in September.

While rumors that Access Industries had been discussing a sale of part or all of the company appeared to be unfounded, the prospectus says Access can still sell a controlling interest to the company in a private transaction to a third party; and wouldn’t require the third part to buy any of the class A shares. That means that if the control of the company were to change hands at a value greater than the company’s valuations, the class A shareholders likely would not realize any of the premium enjoyed by Access, should it be able to sell above the share price.

All existing shareholders prior to the offering have a 180 lock-up period where they can’t sell or transfer any shares. However, that lock up period is at the discretion of the lead underwriters, Morgan Stanley, Credit Suisse and Goldman Sachs.

If at any point Access were to sell shares, the company has amended its by-laws to incorporate a number of strong anti-takeover provisions, according to the prospectus.

Finally, with the potential sale of 80.5 million Class A shares and 440 million Class B  share, the company is reserving the right for a future issuance of 40.654 million Class A shares for its management incentive plan.

In company related news, the prospectus said that Apple and Spotify combined accounted for 27% of total company revenue.

The prospectus also disclosed that while the company is “highly leveraged” with $2.983 billion in total debt the company notes it still “may be able to incur substantially more indebtedness due to the covenants of its existing debt agreements due not full prohibit; and or it may be able to obtain amendments to debt agreements that would allow the company to take on more debt. But all debt would still be subject to compliance with certain financial ratios included in loan documents.

The prospectus forewarned that the company would take about a $388 million non-cash charge for that plan due to a required re-measurement of the company’s valuation due to the IPO for the quarter ending June 30, 2020. That value is locked up in the plan until the management participants are vested. But that accounting likely means that the company will be reporting a lot of red ink for its first quarter as a publicly traded stock.