Warner Music Group Outlines Parlophone Integration Process, Expects $70 Million in Annual Cost Savings

Warner acquired Parlophone from Universal Music Group in February as part of the latter’s offloading of certain assets from EMI’s recorded-music divisions, which were required by regulators in order for that deal to be approved.

The plans were announced early this morning and rather abruptly. A source close to the deal said the commitment to financing was already in place but the determination of the financing’s terms triggered the SEC filing and the coinciding memo to employees.

“We have already received antitrust approvals in Brazil and the US and remain on track to close the transaction around the middle of this year,” the memo reads in part.  “With our committed financing for the transaction already in place, today we embarked on a process to ensure that our funding will be on advantageous terms.  At the same time, we announced that we plan to use cash on our balance sheet to buy back some of our existing debt to help lower our total interest payments and maximize our operating flexibility.”

According to its SEC filing, Warner has amended its senior secured revolving credit agreement dated November 1, 2012 and is seeking an $820 million term loan in order to finance the Parlophone acquisition, pay related fees and expenses and use for general corporate purposes. The company intends to use $175 million to redeem two senior secured notes and repay approximately $100 million in borrowings under its senior secured term loan facility.

Cooper outlined four items for Parlophone’s future:

First, Warner intends for Parlophone to be a frontline label alongside Atlantic and Warner Bros.

Second, Parlophone allows Warner to “reinvigorate” its approach to classical music with a new brand for the genre.

Third, the deal brings a stronger Continental European roster that Warner will use to build its local repertoire.

Fourth, the acquisition of Parlophone’s catalog will serve as a catalyst for a new global catalog strategy.

Warner estimates the combination of the two companies will result in annual cost savings of $70 million. Savings will come from “a wide variety of areas” that covers non-employee factors such as systems logistics and office buildings as well as “integration of support and shared service functions in those territories where duplication will exist,” according to the memo. Some layoffs are expected as a result.

Warner paid around $765 million for Parlophone. The label group is comprised of the Parlophone, Chrysalis and Ensign labels as well as EMI’s recorded music divisions in Belgium, Czech Republic, Denmark, France, Norway, Portugal, Spain, Slovakia and Sweden. Its roster includes such acts as Coldplay, David Guetta, Gorillaz, Itzhak Perlman, Pink Floyd and Tinie Tempah.