Trading WMG

The launch of Warner Music Group‘s Initial Public Offering didn’t reach too many high notes May 10th. WMG decided to launch its stock at $17 a share – rather than a projected $22 to $24 – then watched as the stock quickly dropped during the first hours of trading.

At the closing bell, it had recovered to about $16.30 a share, but it was by no means a glamorous debut.

The company, which has been preparing for the IPO for quite some time, hit a snag recently when one of its artists, Linkin Park, stated it would stop recording for WMG. The band claimed the company was more focused on making money through the IPO than it was on artist development.

In fact, the Los Angeles Times said analysts complained that $200 million of total proceeds were earmarked for insiders, with only $7 million slated for corporate uses.

In a May 6th conference call with investors, a Sanford Bernstein analyst said the WMG $22 to $24 valuation looked “utterly out of line with reality,” according to The Wall Street Journal.

In the end, what was supposed to be a $650 million windfall for the company wound up being about $554 million. Instead of 32.6 million shares, about 27.2 million were offered up by eliminating shares being sold by current owners.

“This shows a serious concern with the health of the music industry,” Fulcrum Global Partners managing director Richard Greenfield told the Times. “Warner struggled to get this deal done, and they could only do it after a 26 percent haircut.”