KKR, BMG Consider Bid for All of Warner Music Group

The game of musical chairs continues.

The auction of Warner Music Group, put on the auction block earlier this year, has edged into the second round, where a sale of the whole company is becoming an increasingly probable scenario.

A partnership between music publishing giant BMG and private equity shop KKR is mulling whether to make a bid for all of Warner Music after its bid for the Warner/Chappell publishing arm was rejected.

However, one source familiar with the situation noted a decision has yet to be reached on the matter.

Investment bank

Goldman Sachs


leading the auction process, had steered bidders in the first-round toward the publishing unit, according to one source familiar with the situation. Warner/Chappell is the company’s cash cow, since it has less overhead and a steady royalty stream. The rest entails more expensive contracts to manage performing artists like Led Zeppelin and James Taylor.

Private equity firms Bain Capital and Thomas H. Lee Partners are looking to exit the music business after buying the beleaguered company alongside chairman Edgar Bronfman in 2004. The consortium took WMG public in 2005, though they still own more than half the company, according to Thomson One. They also occupy eight of the company’s 12 board seats.

A bid for the whole company emerged from a team led by Ron Burkle’s Yucaipa Companies that supposedly includes an endorsement from media mogul Sean Parker, says a source familiar with the process.

Parker’s claims to fame, of course, include founding controversial music site Napster and investing early in Facebook, which earned him a "Social Network" character played by Justin Timberlake.

Parker could end up working with any of the bidders, but that his closest “social ties” remain with Yucaipa, says a source close to the bidding.

Though Parker could inject some equity into a deal, one of these sources said, his contribution to a deal team would be seen as more intellectual than financial.

A Yucaipa spokesperson declined to comment on the process. Warner Music Group could not be reached for comment.

This is far from a two-dog fight, with several private equity firms and media moguls still circling the company. Warner shareholder and Access Industries CEO Len Blavatnik has yet to make a bid, but should not be ruled out.

Haim Saban, chairman of Saban Capital Group, may also be in the sale loop. Reports have tagged Platinum Equity,Sony Music,Apax Partners and Apollo Management as potential bidders.

Further complicating the outcome of a Warner deal is the coinciding of an auction for its overseas competitor, EMI. Citigroup currently owns EMI and has been expected to put the company up for sale after seizing it from private equity firm Terra Firma in a restructuring.

Some bidders could choose to buy EMI instead ofWarner Music.Ironically, they could run into competition in the form of Warner Music chairman Edgar Bronfman, who may be interested in the UK music outfit.

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