Gores Brothers Finalists in Bidding for Warner Music

Los Angeles entrepreneurs Alec and Tom Gores are reported this morning (April 18) to be among three final bidders for Warner Music Group. Tom Gores's Platinum Equity owns the Union-Tribune and recently bought the Detroit Pistons basketball team, along with related assets. Brother Alec Gores's Gores Group on April 1 made an unsolicited offer for the company that owns "American Idol." (A third bidder for Warner is L.A.'s Ron Burkle, whose La Jolla Farms home is said to be one of the most expensive in the county.)

Warner Music is 51 percent owned by two private equity groups, Thomas H. Lee Partners and Bain Capital.

All this has implications for U-T employees and readers, who sometimes forget that Platinum Equity is, after all, a private equity group. Such groups buy and SELL assets; Platinum's normal holding period is 3 to 5 years. It is rumored that Alec and Tom Gores may separately or jointly be interested in buying all or part of the parent of the Orange County Register, which is emerging from bankruptcy and auctioning itself off. There are credible rumors that Southern California newspapers will combine in some way -- either under one ownership or in a loose confederation -- to cut costs. The U-T recently made some layoffs.

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"The U-T recently made some layoffs." Really? What a surprise! They've never done that before, have they? What's this world coming to? The Incredible Shrinking Newspaper is now printing stories that I've seen on the BBC headline service two days earlier. What IS this newspaper coming to?

But back in those old days when the Sunday paper weighed a ton, there was no Internet, no SignOnSanDiego, etc. Best, Don Bauder

Yes, some of us are of the old -- in my case very old -- school. Best, Don Bauder

Well-respected? Really? I always thought I was too cynical for sun-drenched San Diego. Best, Don Bauder

At this point, there only appear to be a few layoffs on the editorial side, but I am checking out a possible large one in another part of the company. Again, it is always wise to remember, as you know, that Platinum Equity is a private equity group. It buys assets to sell them. I think some U-Ters don't fully grasp that. Best, Don Bauder

Did the Detroit Pistons deal close already?

No. The sale still has to be approved by The NBA. He met with the League Advisory-Finance Committee this past Thursday. I heard David Stern say last week that the owners will vote on the sale after the NBA Finals are over, which will be sometime in June.

There are other sports teams owned or part-owned by private equity groups. It's my understanding that Gores himself will be the major owner, and Platinum Equity will have a smaller piece. Best, Don Bauder

Williams Davidson's widow Karen will also retain a small percentage of ownership, something less than 10%, but Gores is buying the team on his own, except for the small percentage, something around 10% I've heard, that Platinum is buying strictly as an investment. Gores is also buying their arena, The Palace of Auburn Hills. It was privately financed 20+ yrs ago. I've never been there, but I've heard announcers and such talk about how nice it is and that it has the same amenities as the newer arenas, in particular the all important luxury suites. My own particular memory is of the Lakers getting swept by the Pistons in the 88-89 Finals with the last 2 games there and the crappy seats they gave Jack Nicholson and the other L.A. celebs that made the trip and that to mock him, they handed out a bunch of rayban wayfarers to some "kids" around them and nicknamed the the Nicholson Youth. No, NOT a Pistons fan.

I've never been to the arena or the other amenities, but I see one big flaw in this deal: the location -- Detroit. Best, Don Bauder

I've never been to the arena or the other amenities, but I see one big flaw in this deal: the location -- Detroit

The Palace is actually in Auburn Hills, an upscale suburb of Detroit. I have actually been to the Palace and it is very nice, as is the area. Very upscale area. In fact to say Aubrn Hills and Detroit are 180 degrees different would be about as accurate as you can get.

There may be some i's to dot and t's to cross but according to the Detroit media, it's a fait accompli, although the NBA has to approve it. Best, Don Bauder

Don, I'm assuming that it's Platinum Equity and not the Gores bros as individuals. I can't see Gores Leveraging himself that much. If you can believe what you read, Platinum is investing in less than 10% of the Pistons. The rest is coming from Gores personally. I've read that WMG is asking $3 Billion. I'm mildly suprised the price is that low. That's not much of a premium on book value of $2.8 billion and Bronfman's group paid around $2.5 billion when they bought it a few yrs ago.

It's not clear from what I've read whether it's the Gores brothers individually, the Gores Group and Platinum Equity, or some combination. Alec Gores said today that he wants to merge Alliance, which he and brother Tom own (possibly at least partly through their firms) into a Hollywood studio. Best, Don Bauder

Ive also read that a merger with EMI might also be in the cards for whomever ends up getting WMG. I read today, in a NYT article dated 4-10, that it is Platinum Equity that made the bid.

Yes, Warner Music has been eyeing EMI. Best, Don Bauder

Several entities would like to own EMI Citigroup has had control of EMI since they took it back in February and have said they are oly interested in selling EMI as a whole; they have no interest in seperating content from publishing.However, I think it's safe to say Citi has no interest in holding on to it in the long term. Supposedly, there is also a $16 billion investment fund backed by the Abu Dhabi government that is interested in obtaining EMI. A future bidding war perhaps?

An article I read last nite in the NYT, datd April 10, indicated that the bid for WMG was issued by Platinum Equity.

It's tough to tell in these Platinum Equity announcements whether Gores is making the investment by himself or Platinum Equity is joining him, or Platinum Equity is the only buyer. Best, Don Bauder

Response to tomjohnston 8:39 a.m.: The technologies are changing so fast in the music industry that I doubt any two or three companies would want to get into a bidding war for EMI. However, there could be other assets, such as archived recordings, that would be very valuable. Best, Don Bauder

Basically, EMI's main businesses are the music content and publishing divisions. They don't have a large share in content sales, but their biggest asset, their most lucritive property, is The Beatles catalog. After EMI and Apple Corps Ltd worked out their differences and licensed the other Apple to sell the catalog, well lets just say the coffers have gotten a little fuller. ITunes started selling The Beatles in mid Nov last year and by the end of the year, all 60 of the individual songs were in Itunes top 200 sold and all 17 albums were in the top 50 sold. In other words, there is still a lot of money to be made and whoever is partnered with Apple/Itunes has a leg up. But the problem is that Citi to sell the record label as a whole rather than break up its music and publishing divisions. Their publishing business is the weeker of the 2,but imagine owning the catalog of a group, who forty years after breaking up,sold 450,000 albums and 2 million songs worldwide in one week. That's over $10 million in 1 week. I think someoe will see $$$$ and thinks it's worth the price and if there happens to be 2 such someone's, well who knows. The allure of The Beatles can be pretty strong. Remember, in the mid 80's, Michael Jackson paid $47 million to buy ATV's publishing catalog,which contained the publishing rights to most of The Beatles songs; ATV had gained control of Northern Songs some years earlier. That was $47 million for just 50% of the royalties. And then when he needed to generate some cash in the mid 90's, he sold 1/2 of his share to Sony for almost $100 million.$100 million for 1/2 of something he paid $47 million for. A pretty good investment as it turns out. I was considering making a bid myself, but our bank account is just a few zeros short. HaHaHa!!

That's a lot of history that I know little about. Appreciated. Best, Don Bauder

Apparently, Gores bid wasn't quite good enough. Warner Music Group has agreed to a purchase by Access Industries. Access Industries is a privately held, U.S.-based company focusing in three sectors: natural resource and chemicals; media and telecommunications; and real estate. It is owned by Russian-American businessman Len Blavatnik. Forbes has been estimated Blavatnik's net worth at $7.5 billion. Access has been a major shareholder in WMG since 2004.

Yes, it is being reported this morning (May 6) that Blavatnik, who has been closely associated with Warner Music for several years, is the winner. His privately-held Access Industries pays $1.3 billion and takes on $1.9 billion of Warner debt. Problem: U.S. recorded music sales are half what they were a decade ago. Gains in digital sales have begun to flatten, and CD sales continue to fall, according to the Associated Press. The Gores brothers and other unsuccessful bidders might get parts of the company if Blavatnik decides to shed some components. Best, Don Bauder

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