Who’s Trying To Buy Sanctuary?

In the five days after The Sunday Times speculated that Sanctuary Records Group could be engaged in takeover talks, the shares rose 5 pence and the music group has been forced to tell the London Stock Exchange it’s in discussion with potential investment partners.

Sanctuary is due to present interim figures in three weeks and the market will want to know whether a deal has been cut before then.

The Sunday Times followed up June 5 by saying EMI is one company making a play for it, although other reports – including one in the same paper last December – also put Warner Music Group in the frame.

As the company shares eased up 0.5 percent to 43.75 during the course of the day (June 3), Sanctuary put out a statement that said it was in preliminary talks “which may or may not lead to an offer or a further business opportunity.” It said further announcements would be made “as appropriate and in due course.”

The Sunday Times first raised the idea that Sanctuary could be for sale in a December 5 article that said Warner Music chief Edgar Bronfman Jr. was looking to buy up management companies in advance of that company’s stock market flotation.

The paper said “sources close to Bronfman” have revealed he’s looking to add more publishing, merchandising and music management to the company’s business mix. Sanctuary has a finger in all those pies, plus record company interests and a couple of booking agencies (Helter Skelter and K2). The paper is also hedging its bets by saying such private equity companies as Spectrum and Apax, which already has a stake in music publisher Stage Three Music, could also be eyeing Sanctuary.

Sony BMG, with which Sanctuary has an international licensing agreement, is another likely to have taken a look at the company at some point.

After the takeover talks were made public, Numis Securities sent a research note to clients that said, “We are not surprised the group has attracted consolidation speculation.” It valued the basic share at 45p and pointed out that a premium would be needed to gain quick control. That pitches Sanctuary’s value at about £150 million.

However, Investec Securities said selling Sanctuary would lessen its talent gathering strength as artists are attracted by its independence from the majors.

Earlier this year, New York-based Sanctuary Group CEO Merck Mercuriadis was quoted as saying, “At the end of the day, whether we’re a listed company or whether we’re not, we’re always going to be a responsible company. What we don’t do is allow our artists to be affected by financial matters. To me, we’re first and foremost an artist company.”

The first shareholders a buyer would need to target are Dutch TV producer John de Mol, whose investment vehicle Talpa Capital has a near 20 percent stake, while Fidelity Investment Manager and ING Bank have a little more than 10 percent each.

Sanctuary Group, which started as a management company in 1976, has developed a broad-based business model and works as record company, manager, publisher or agent with a massive range of artists including Elton John, Beyoncé, The Strokes, Coldplay, Dido, Morrissey, Robert Plant, Lou Reed, Iron Maiden, The Who, Guns N’ Roses, Red Hot Chili Peppers, The Darkness, and Jane’s Addiction.

For the year ending September 30, 2004, it reported steady – although very slightly reduced – pre-tax profits of £16.1 million (US$30.3 million), while turnover was up 45 percent to £220.9 million (US$416 million).

— John Gammon