The Deal

In November 2003, Edgar Bronfman Jr. and a group of private equity investors agreed to pay $2.6 billion for Time Warner’s music business, Warner Music Group, in an all-cash deal. The purchase of Warner Music, home to such artists as Fleetwood Mac and Josh Groban, was financed largely with debt, and Bronf­man became the company’s new chairman and chief executive. The last time he grabbed the reins of a company, Vivendi Universal, in 2000, Bronfman held on to its falling stock and lost an estimated $4 billion of the Seagram fortune.

The Aftermath

Warner saved $250 million in the months after Bronfman’s acquisition, by cutting jobs, wages, and company investments. In May 2005, a little more than a year after the deal closed, Warner went public, but slow demand forced Warner to reduce its offering size. The I.P.O. attracted $554 million—26 percent less than the $750 million Warner had anticipated. Still, the sale raised enough money to repay Bronfman and his investors at Thomas H. Lee Partners, Bain Capital, and Providence Equity Partners. Although Warner’s digital-music sales had gained some market share by 2006, sending the stock price up, mounting losses in CD sales since 2007 have flattened the share price from a high of $23 to single digits. In May 2006, Bronfman rejected what now looks like a very attractive takeover bid, from rival EMI, of $31 a share.

The Bottom Line

Bronfman’s purchase got him and his partners off the hook—but it hasn’t been good for shareholders. Like all major-label chiefs, Bronfman has yet to determine how to profit from digital-music sales. And after paying back its first investors’ personal contributions of $1.2 billion, Warner still has a debt load of $2.3 billion. The company even had to suspend its dividend this year. Says Morningstar analyst Larry Witt, “Warner Music Group’s best days appear to be in the past.”