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Time Warner music deal advances

November 2003

Time Warner music deal advances

Bronfman emerges as winner -- for now -- over EMI

By Russ Britt,

Last Update: 9:59 AM ET Nov. 21, 2003

LOS ANGELES (CBS.MW) -- EMI's bid to take over the troubled music division of Time Warner has gone down to defeat, putting an investor group led by Edgar Bronfman Jr. in the driver's seat for at least a few days.


Sources familiar with the situation said late Thursday that Time Warner's board has decided to "focus" on Bronfman's $2.5 billion offer for the next several days. Sources said the board isn't negotiating exclusively with Bronfman but is "turning its attention" to the Bronfman offer.

Shares of Time Warner (TWX: news, chart, profile) gained 6 cents to $15.50 in the early going Friday.

If Time Warner's board cannot reach an agreement in the time allotted, which remains unspecified, it could return to the bargaining table with EMI, sources said.

While not mentioning Bronfman by name, EMI Chairman Eric Nicoli announced Thursday evening that Time Warner is "now considering a possible proposal from another party as an alternative to our own firm offer."

EMI was reportedly offering Time Warner $1 billion in cash and up to a 25 percent stake in the new music entity, while Bronfman would buy the division outright for more than twice that.

EMI's Nicoli added, "Following a rigorous assessment of the business and the opportunity to create value, we have put forward a full and fair offer with the interests of our shareholders uppermost in our minds."

Analysts had said the deal would probably be discounted like the rest of the music industry. Ravaged by online piracy and changing public tastes, music labels have seen unit sales drop by one-third from their 1999 peak.

"It's not going to go for what it would have gone for four or five years ago," said Jeffrey Logsdon, analyst for Harris Nesbitt Gerard. "I think music has become such a fractional part of the Time Warner asset portfolio. It's certainly generating 5 percent or less of (operating earnings)."

Merging the Warner labels with those of EMI would have represented the second planned marriage of two music giants. It comes on the heels of Sony's (SNE: news, chart, profile) agreement to form a 50-50 joint music venture with Germany's Bertelsmann AG.

The main sticking point is that both deals might have been been blocked by European regulators, who have a tendency to frown on such transactions.

Selling to Bronfman may not be the best solution for the music operations. Although he ran Universal's (V: news, chart, profile)music group while that company's chief executive from 1995 to 2000, Bronfman can't provide the cost savings that would come with a merger of equals.

Yet analysts see the wisdom in going with a Bronfman offer. Ken Marlin, a media industry investment banker, said it was the best choice, given Time Warner's burdensome $24 billion debt level.

Time Warner chief Dick Parsons "took the only logical step -- and the price was right. He has been talking about lowering Time Warner's debt, and this is a good one for him," Marlin said.

James Goss, analyst for Barrington Research, said the sale would represent a clean break for Time Warner. Along with its troubled AOL online division, the company found itself constantly apologizing for its music group's performance.

"They'd always have to say everything was going well, except for music, in recent quarters," Goss said.

The Warner music group is home to the Atlantic, Elektra, Warner and Rhino record labels, as well as such artists as Kid Rock, Linkin Park, Faith Hill and the Red Hot Chili Peppers.

Russ Britt is the Los Angeles bureau chief for

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