Warner Music Group(WMG) priced 32.6 million shares at $17 well below the $22-$24 range. Lead underwriters Goldman Sachs/Morgan Stanley. 143+ million shares outstanding roughly 2.4 billion cap at pricing...and roughly the same amount in debt! Yet another offering coming public highly leveraged. We've just seen too many of these kind of offerings the past 4-5 months, a definite contributor to the sluggish ipo market.
Looks like the funds/institutions taking down stock on offerings are finally getting tired of losing money. Roughly 70-75% of '05 ipo's have broken their pricing at some point, yet we've not really gotten discounts on the more solid offerings other than PAY. We have gotten some slashing in the weaker or bulkier offerings and this one falls into the latter of those two descriptors.
WMG is one of the world's largest music companies, consisting of Recorded Music(83% of revenues)/Music Publishing Divisions(17% of revenues)..WMG owns one of the most extensive publishing/recording catalogs in the world.
WMG has historically relied on the retail sale of recorded music as their earnings driver. This is a company that was designed for the malls/Tower Records and CD's....They've had a real problem adapting to the changing landscape and indeed seem intent on litigating their way back to dominance. Revenue has been flat for years now as their previous topline growth drivers CD sales have not grown(and in fact will most likely decline significantly in the coming decade); to say they've not been on the leading edge of adapting to digital downloaded music as a new revenue driver would be kind...and that's a real issue here going forward with WMG
the lack of revenue growth driver and the extent of the debt has really hampered WMG from putting much at all on the bottom line the past few years----add to the fact that there is a whole generation that does not buy recorded CD's and that WMG is well behind this curve and...you can see why this offering was slashed mightily.
it's a bit alarming(but not unusual anymore with these bloated offerings) to see they've paid out well over 1 billion in shareholder dividends in periods prior to and on this offering---new shareholders get none of this of course but are indeed left with the leveraged company brought to market. They have stated an intent to pay dividends in the future, not exceed $80 million annually, but no guarantees/no minimum expectation.
in effect we've got a company with a 'wind in your face' type of biz(as opposed to my 'wind at your back' sectors), that has paid over a billion dollars to insiders, loaded the impending public company here with heavy debt load and...want to sell this to you/I
Is it a buy at $17? I don't know, I think there's a good possibility they slashed this one low enough to hold this initially. But isn't it time that the market just say no to these type of deals at any price? We're seeing an awful lot of supply the past 6 months that is coming leveraged/bloated/with heavily paid off insiders---it almost makes one long for the stock option days of '99, at least those guys had to wait a few months to cash out.
Nowadays they come public with a good cash flow company, direct most of that cash flow into their pocket while private along with a nice chunk of the proceeds and....still retain control of the remaining company once public.
Also I did a study awhile ago of ipo's with 12 million or less shares and those with greater than 12 million. The result re-affirmed what I'd expected in that the larger than 12 million offerings were as a whole far less volatile than the smaller offerings---meaning 1)fewer were mispriced initially, and 2)their longer term earnings cash flow were more accurately priced in on the ipo. also as a byproduct it's much more difficult to successfully trade less volatile offerings, so as a rule unless their is one I feel is significantly under-priced, I skip the larger offerings and focus on the smaller.
So is this a buy at $17? Well when a deal comes along with a One Billion Dollar+(Dr. Evil anyone?) payout as this one and stagnant revenues to boot I'll pass on general principle. I think it's time the market just says no to these kind of offerings---they slashed this one significantly, but they'll still be coming to market at 2.4 billion and this offering will soak up over 1/2 a billion of cold hard cash tomorrow. I pass, I'm on strike with these leveraged offerings and have been walking that picket line for awhile now---maybe someday the rest of the market will join me? the Lazard fiasco/breaking and the huge pricing slash of this one may be the start?
between the LAZ/WMG prospectus, it's 500+ pages of greed...these two should be shining stars of the American success story, 2 companies built thru the years to last, both pioneers in their respective industries and textbook success stories---and yet their offering just read as long convulted legal testaments of greed. It's a shame and I'm tired of it----where did we turn the corner into punishing future holders so harshly simply to line very deep pockets further?