Warner Music float price falls flat

WARNER Music's troubled flotation has valued the company at less than former Vivendi chairman Edgar Bronfman Jr and other investors paid for it just over a year ago.

Priced at a mere $17, the initial public offering fell well short of the anticipated $22-$24 range.

Bronfman and his cohorts paid Time Warner $2.6bn (£1.4bn) for the business which, when it begins trading on the New York Stock Exchange today, will have a market capitalisation of $2.4bn.

Warner Music includes Madonna and Linkin Park among its artists and owns the rights to more than 60,000 songs, including Happy Birthday to You. If the shares had sold at $23, WMG would have had a value of $3.29bn, a figure that analysts deemed much too rich considering that sales of recorded music, especially CDs, are in decline.

In its most recent quarter, WMG - rumoured to be considering a merger with EMI - reported an 8% revenue decline to $1.09bn. But cost-cutting by the new owners turned a $1.15bn loss a year ago into a $36m profit.

Bronfman has slashed jobs and cut the artist roster at Warner Music to ensure the company was better positioned to take advantage of digital music downloads and the growing mobile phone ringtone market than competitors such as Sony and EMI.

Potential investors did not buy that argument and the IPO hit further hurdles over where the money from it was going - most being used to reduce the debt Bronfman and his fellow investors raised to buy the firm.

The Bronfman team will get some $90m as well as a reputed $73m management termination fee, even though they have already stripped out their total cash outlay from a year ago. Nor did the fact that that Bronfman and private-equity firms Thomas H Lee, Bain Capital and Providence Equity Partners, seem to be bailing out inspire confidence in the company's prospects.

In the end, a mere $5m out of the total $554.2m raised from the IPO is likely to go towards WMG's ongoing operations. Warner Music is the smallest of the four major record distributors and lost market share in 2004.

The managers of the IPO, Goldman Sachs and Morgan Stanley, shared fees of $26.3m for the sale.