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Warner Music Group mulls sale, even as it considers buying EMI

January 21, 2011 |  2:49 pm

Warner Music Group has set the ball in motion for a potential sale of the company, even as it considers a bid to buy rival EMI Music.

Warner has retained Goldman Sachs to vet a bid from private equity firm Kohlberg, Kravis & Roberts and potentially others, according to two sources close to the companies. KKR had approached Warner late last year about a potential deal.

Warner's move, first reported Thursday in the New York Times, does not indicate that a sale is imminent, the sources said. Instead, it appears to throw everything up for grabs, thrusting  the industry into a maelstrom of chatter about potential musical mashups.

Warner Music Group debut on NYSE One possible outcome is that Warner will shed some of its properties to raise money to make a run at EMI, according to a report from brokerage firm BTIG.

The current owners of EMI, Terra Firma, is struggling to meet loan payments to Citigroup, which lent the private equity group $4.2 billion to purchase the record company in 2007. Should Terra Firma default, Citigroup could initiate an auction to sell EMI and recover its loan.

EMI last year reported a $2.4-billion loss for its 2009 fiscal year due to write-downs related to the acquisition, even though its core music business generated $458 million in operating profit.

Warner, the only publicly traded major music label, posted a net loss of $143 million on sales of $2.98 billion in its fiscal year ended Sept. 30. A year earlier, it lost $100 million on $3.2 billion in revenue. 

Shares in Warner shot up $1.29 Friday, more than 27%, to $6.01, as speculation that the company would be bought overshadowed news that Warner's chief executive Edgar Bronfman, Jr., was convicted in a French court of insider trading while he was vice chairman of Vivendi in 2002. Bronfman said he would appeal the ruling.

-- Alex Pham

Photo: Led Zeppelin lead guitarist Jimmy Page, far right, provided the accompanying music for Warner Music Group's debut on the New York Stock Exchange in May 2005. Warner CEO Edgar Bronfman Jr. sits second from left. Credit: Richard Drew / Associated Press