Time Warner and EMI Combine Music Businesses in Multi-Billion Dollar Deal

Strategic Insights -

Time Warner Inc. and EMI Group plc have agreed to combine their respective music businesses in a massive deal worth billions of dollars. The merged entity, Warner EMI Music, will have pro forma revenues of approximately $8 billion for the 12 months ending September 30, 1999, and more than $1 billion in EBITDA. The combination is expected to yield substantial cost synergies, enhanced catalog values through new media opportunities, and combining catalogs of older artists.

Key Takeaways:

  • The combined entity, Warner EMI Music, will have pro forma revenues of approximately $8 billion for the 12 months ending September 30, 1999.
  • The merged entity will have more than $1 billion in EBITDA.
  • Time Warner and EMI will contribute debt valued at approximately $1.5 billion as of September 30, 1999, to the new entity that will be non-recourse to the parent companies.
  • Time Warner will make a cash payment of approximately $1.3 billion to current EMI shareholders.
  • The new entity plans to pay out a significant portion of earnings to the parent companies.
  • The effect of the Time Warner/EMI transaction on the AOL/Time Warner combination's debt protection measures is expected to be marginal.
  • EBITDA for the AOL/Time Warner combination could have approached $10 billion in the first full year of operation prior to the announcement of the music joint venture.

Statistics:

  • Pro forma revenues for Warner EMI Music: $8 billion
  • EBITDA for Warner EMI Music: $1 billion+
  • Debt contributed by Time Warner and EMI: $1.5 billion
  • Cash payment by Time Warner to EMI shareholders: $1.3 billion
  • Projected EBITDA for AOL/Time Warner combination: $10 billion
  • Timeframe for projected EBITDA: First full year of operation

Sources:

  • Duff & Phelps Credit Rating Co. (DCR)
  • Time Warner Inc. (NYSE: TWX)
  • EMI Group plc