Warner Music 1Q loss expands, but beats estimates

AP News
Posted: May 10, 2011 4:06 PM
Warner Music 1Q loss expands, but beats estimates

Warner Music Group Corp.'s first-quarter net loss expanded, even as revenue grew for the first time since late 2009, helped by the growth of digital downloads while CD sales continued to fall.

The mixed results released Tuesday came ahead of its sale to Len Blavatnik's Access Industries, which will pay $8.25 per share in cash in a deal to close by September.

Warner Music said it had 150.5 million shares outstanding at the end of the quarter March 31, meaning Blavatnik will pay around $1.24 billion for the New York-based company, home to artists such as Eric Clapton, Jason Mraz and Estelle.

Warner Music had $1.95 billion in long-term debt and $319 million in cash and equivalents on its books. That means Access' agreed-upon offer values the company at about $2.87 billion.

Bronfman and partners Thomas H. Lee and Bain Capital have agreed to vote their combined 56 percent stake in favor of the deal. They bought the company from Time Warner Inc. in 2004 for $2.6 billion.

Also Tuesday, Fitch Ratings downgraded Warner Music's issuer default rating by one notch further into junk territory, to "B+" from "BB-." Fitch said Blavatnik "will most likely fund a portion of the equity take out with incremental debt" to buy the world's third-largest recording company.

The ratings outlook was "Watch Negative," meaning a further downgrade was possible based on how the deal is structured.

Fitch noted that ratings may be pressured further if the new owner takes on even more debt to bid for Britain's EMI Group Ltd., which Citibank aims to sell soon.

The net loss in the three months to March 31 grew to $38 million, or 25 cents per share, from a loss of $25 million, or 17 cents per share, a year earlier.

Excluding severance charges, the adjusted loss came to 20 cents per share, better than the 28 cent loss expected by analysts polled by FactSet.

Revenue grew 2 percent to $682 million from $666 million, also better than the $610 million expected by analysts.

Digital revenue grew 9 percent to $220 million.

In the U.S., digital revenue from recorded music grew 1.7 percent to $122 million, or about 48 percent of all U.S. revenue.

The company decided not to hold a conference call with analysts following its quarterly results since its sale will result in shares being delisted from the New York Stock Exchange.

Shares fell a penny to $8.18 in afternoon trading Tuesday, just below the deal price.