Edgar Bronfman’s Warner Music Group has been getting hammered for more than a year, when it became undeniable that 1) the music business is in a “challenging environment” (shocker!) and 2) no one — say, EMI — was going to buy the thing at an inflated price (isn’t a sucker supposed to be born every minute?). WMG shares peaked around $29 in June 2006 and have since tanked. They got hammered again yesterday after Q3 earnings, down to a record low of $9.89.
But today WMG is up 14% on a New York Post report speculating that Edgar and his partners may take it private, completing a circle that began in 2004 when they bought the company for $2.6 billion from Time Warner. There’s some logic to taking it off the public market. Even in the best of circumstances, music companies are dependent on the murky magic of hitmaking: Does Linkin Park still have it? How much do we have to pay Madonna to stick around? You can mitigate some of this uncertainty by owning a valuable catalogue and large publishing assets. Warner has both, along with other small income streams. But its fortunes will always be more capricious than public investors might like.
This said, if you’re an investor who has stuck with this dog over its long slide, why dump the shares now, after a Q3 that really wasn’t that bad? Maybe Bronfman & Co. really will ease your pain: They sold you the thing at $17, after all, so buying it back at, say, $12, would be the least they could do. Oh, and don’t worry about Mr. B’s private-equity partners. The ones that bought WMG three years ago paid themselves back within a year by dumping WMG on you and cutting themselves large dividend checks. And now they’re gearing up to do it again!