Old flames never die. Warner Music Group
The two labels had been trading buyout offers last year. The lovebirds were silenced when the European Court of First Instance took a look back at the 2004 union of Sony
Warner could have done a few things after that. It could have strapped on its guitar and belted out a tune of forbidden love. It could have gone for a rebound by snapping up smaller, independent labels. Instead, Warner studied up on what it would take to get its vows approved.
In this morning's press release, Warner is conceding that it would be willing to sell certain assets to make the deal harmonious. It has also received the blessing of IMPALA, the indie label consortium, by agreeing to back the Merlin initiative that sets up a global digital rights licensing platform to benefit smaller indie labels.
Will that be enough? If it is, Warner should be grateful for the hoops it has been forced to jump through to make this relationship work. It would have overpaid for EMI last summer. EMI has been struggling lately. Just last week, the company warned investors to expect a 15% decline in prerecorded music sales for its fiscal year, which ends in March. Earnings will also dip more than it had originally projected.
The time is right for Warner to step in. Sure, it hasn't been much of a speedster lately. The stock has surrendered nearly 40% of its value since the potential merger was derailed back in July. It hit a bad note with investors earlier this month when it posted lower revenue and earnings in its December quarter report.
However, Warner remains at the leading edge of digital distribution. Even in December's sluggish quarter, digital revenue rose, now accounting for 11% of total revenue at Warner.
Warner doesn't need to be greedy here. It knows that time will only make EMI's heart grow fonder for Warner, especially if other potential suitors head for the hills. But Warner's penchant for homework, and its decision to secure the indie world's blessing, makes this the ideal time to "pop" the question. Expect the nuptials soon.
Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.