Leaked email addresses WMG’s Parlophone assets divestment

A leaked email allegedly sent by a Warner Music exec to contacts atImpala and Merlin uncovers why almost a year has passed since WMG began to divest a portion of its Parlophone Label Group assets in order to meet regulatory approval for its 2013 acquisition of Parlophone.

The email, sent on Christmas Eve 2014and obtainedby MBW, explains why the divestment of Warner’s more than $200m in assets to the independent sector is taking so long.

“We had a huge response to the initial call for divestment bids – over 140 independent businesses made bids for more than 11,000 artists and catalogues. Effectively we were 50 times oversubscribed,” the email reads.

Independent labels and distributorshad until March 8 last year to expressinterestin any artist or catalogue under Parlophone Label Group.The indie labels anddistributors had to be members of trade bodies Merlin or Impala at the time the deal was struck to be eligible.

Impala and Merlin had previously lobbied to ensure WMG divest licensing or distribution assets to indies for an amount equivalent to about 25%-33% of Parlophone’s cumulative sales. Because of this, WMG should make back around 30% of the US$765 million it paid when it acquired the EMI Music Group label in February 2013.

The process was initially thought to take until late2014, however according to the email, WMG are working toward completion in around “3-6 months.”

Read the full email below, courtesy of MBW:

Thank you for coming in last week. I thought it was a really useful and thoughtful meeting. As I did when we met, I just wanted to reaffirm Warner’s commitment to the divestment process that we all agreed.

We are focused on fulfilling our obligations, as you are on yours, and I know we both continue to believe that this is a process that will benefit Warner and the independent community.

I realise that there is a good deal of frustration at how long the process has taken so far. That goes for us as well as you. We all want to reach the goals we agreed as soon as possible.

I would like to set out again the reasons from our perspective why we are not further along than we are at present. First, as you know, we had a huge response to the initial call for divestment bids – over 140 independent businesses made bids for more than 11,000 artists and catalogues. Effectively we were 50 times oversubscribed.

Coming up with revenue figures and valuation ranges for such a large number of artists and catalogues was an enormous task. Coupled to that is the need for us to carry out at least basic due diligence on the respective artist and catalogue agreements to check for issues of transferability.

Also as you know, we spent several months discussing with you and John the appropriate mechanics for valuing assets. At the same time we were engaged in negotiations with your legal team on the draft template Asset Purchase Agreement and Licence Agreement. For various reasons, all of these items took longer than expected.

We are now making good progress, working with our various repertoire owners around the Warner group, to review John’s extensive counter proposals to our own submission. I am optimistic that we will complete that process by the end of January and – assuming that our pragmatic and constructive dialogue with John continues– we will have agreed the overall package of divestments by the end of February.

We will then need to undertake a detailed review of the relevant artists agreements and begin the process of assembling the assets (masters, artwork etc) that will need to be transferred to successful bidders.

Clearly we will have a lot of work to do in order to get agreements with all successful bidders in place as well as conclude all the necessary discussions with artists or their representatives. I anticipate – again, with John’s cooperation – that that process will take around 3-6 months so that in mid/late Summer of 2015 we should be in a position to conclude the agreements and transfer the assets to your members.

Again, it is unfortunate that this process is taking longer than any of us would like despite a great deal of work on both sides but we remain very committed to completing the divestment process. I will of course keep you updated as we move forward in the next weeks and months and am happy to meet with you both on this and other issues of common interest to Warner and your membership.

Best wishes for Christmas and the New Year.