Time Warner, Bronfman in Tune on Deal

Former Seagram Co. Chief Executive Edgar Bronfman Jr.’s investment team emerged Thursday as the front-runner to buy Time Warner Inc.’s music division, for now besting a rival bid from EMI Group.

Bronfman has until Sunday to seal the deal with Time Warner, or the media conglomerate may go back to negotiating with EMI, sources said.

At an all-day board meeting in New York, Time Warner Chairman Richard D. Parsons recommended going with the Bronfman proposal, sources said. They said he was concerned that antitrust objections would sink an attempt to merge Warner Music Group’s recorded- music division with London-based EMI, because two other music giants are close to striking their own union.

Bertelsmann and Sony Corp. have filed an application with the European Union for permission to join their labels, BMG and Sony Music Entertainment. Time Warner has come to believe that two such deals might be too much for regulators to digest, sources said.

If Time Warner sells to Bronfman and Sony and Bertelsmann close their union, the industry would become a field with four major players: Universal Music Group and Sony BMG with about 25% each of the global market, and EMI and a privately held Warner Music with about 12% each.

Time Warner’s move Thursday was a blow for EMI, which has been shopping for years for a partner that could help it trim costs and stay afloat in the troubled recording industry.

For Bronfman, it was a stunning turnabout, putting him a step closer to returning to the record business. For months Bronfman, 48, had been considered a dark horse even as he assembled financing for a run at the world’s fourth-largest record company.

Bronfman’s investment team includes TV mogul Haim Saban, producer of such kids programs as the “Mighty Morphin Power Rangers,” and leveraged buyout specialist Thomas Lee.

The team offered about $2.55 billion for Time Warner’s recorded-music and music publishing operations, plus the assumption of various liabilities, sources said. Time Warner would have the option of holding on to an estimated 20% stake, sources said.

Bronfman and Saban could not be reached for comment.

EMI is interested only in Time Warner’s recorded-music operations. It offered about $1 billion in cash, plus a 25% stake in the combined entity, according to sources. Negotiations with the British music giant -- the No. 3 record corporation -- had been held back by Time Warner’s concerns about EMI’s ability to lock up financing for a deal, sources said.

“We have put forward a full and fair offer,” EMI Chairman Eric Nicoli said Thursday. “Time Warner has tonight informed us that they are now considering a possible proposal from another party as an alternative to our own firm offer.”

Since taking EMI’s reins in 1999, Nicoli has failed twice to complete deals with rival music conglomerates -- once with Time Warner and once with Bertelsmann -- when both foundered amid regulatory objections.

For his part, Bronfman has had a roller-coaster run in the media industry. The heir to the Seagram liquor fortune moved away from slow-growth operations such as beverages and the chemical industry in 1995 and plunged his family investments into film and music.

With a series of multibillion-dollar deals, Bronfman took control of Universal Studios and created Universal Music Group, the world’s biggest record conglomerate and home to acts such as U2 and Ja Rule.

After building an entertainment juggernaut, Bronfman sold Seagram to French water utility Vivendi in 2000 for $34 billion in stock. Vivendi’s then chief, Jean-Marie Messier, envisioned turning the company into an multimedia powerhouse, but the company’s debts soared and its shares plunged, costing the Bronfmans billions in paper losses.

Messier was forced ,out and this year Vivendi sold its U.S. entertainment assets. Bronfman bid on the music and film properties but lost out to General Electric Co.’s NBC.

Still, the idea that Bronfman might emerge the victor for Time Warner’s music business cheered some Warner Music insiders.

“Haim Saban loves music. Certainly Edgar Bronfman does,” said one senior label executive. “If he wants to build a culture that allows artists to get back to the way things used to be, it could be amazing.”

Bronfman is believed to have a good relationship with Warner Music Chairman Roger Ames, who has run the operation since 1999. Bronfman also has held talks with Jeff Kwatinetz, head of artist management powerhouse the Firm, about playing some role in the music company, sources said. Kwatinetz’s clients include Warner acts Linkin Park and Staind.

This isn’t the first time Bronfman has capitalized on woes at Time Warner, which is deeply in debt and under a Securities and Exchange Commission investigation into accounting practices at the America Online division.

In the 1990s, when Time Warner was in chaos amid infighting between the corporate parent and the music unit, Bronfman’s Universal Music hired a number of top Time Warner music executives. Bronfman also ended up with a stake in hot-but-controversial label Interscope Records, which Warner Music had dumped.