Warner Music addressed fears it was struggling to line up sufficient funding for its £2.6bn (E3.76bn, $4.8bn) bid for rival EMI last week by securing a formal guarantee from investment banks Lehman Brothers and Goldman Sachs to underwrite the debt.
The details of the financing, seen by The Business, will reassure the board of EMI, which had concerns.
EMI and Warner, the world’s third and fourth-largest music groups, are bidding to buy each other.In a document known as a “highly confident” letter sent to Warner from its adviser Goldman Sachs dated 27 June, it uses banking terminology that is akin to a full commitment to funding the deal.
It reads: “… we are pleased to inform you that, as of date hereof, we are highly confident that the sale and placement of the securities and the structuring and syndication of the credit facility can be accomplished by the banks as part of the financing for the acquisition as described above.”
This means that the two banks have committed to raising the capital from third parties in different tranches of debt. The transaction has passed through the banks’ internal processes and the risk now lies on the balance sheet of Lehman and Goldman, which are committed to raising the funds in the event Warner’s bid is sucecssful.
The “highly confident” letter is a standard tool that gives Warner solid comfort that no matter what happens in the debt markets between now and when they might need to call on the cash, Lehman and Goldman have effectively underwritten the amount.
EMI, which has signed Robbie Williams and Coldplay, made an increased all-cash $31-a-share bid for Warner last week, which was rejected. Warner in turn bid 315p a share for EMI, which was also rejected.
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