WMG stock doesn’t rock

Warner gets a lukewarm greeting at the Exchange

Led Zeppelin guitarist Jimmy Page accompanied the opening bell at the New York Stock Exchange with “Whole Lotta Love,” even as investors shunned shares of newly public Warmer Music Group on its first day of trading Wednesday.

The stock, which Warner priced at $17 a share late Tuesday, fell 3.5% to close at $16.40. It had dipped as low as $15.75, or 7.3%, early in the session.

The drop was doubly painful since the $17 pricetag had been slashed from an estimated range of $22-$24.

“Imagewise, it looks bad when you try to complete an offering, and you’re forced to cut the price, and the stock falls anyway,” said Steven Tuen, an analyst for IPO Value Monitor.

Market players cited jitters over the future of the music biz and reluctance to embrace what some called a “quick flip” — an overly speedy IPO that seemed designed to benefit WMG’s deep-pocketed financial buyers.

Edgar Bronfman Jr. and a trio of buyout firms acquired WMG from Time Warner one year ago in a deal worth $2.6 billion. Price included $1.25 billion in cash and the assumption of $1.35 billion in debt.

WMG’s debt now stands at $2.5 billion — swelled in part by special dividends distributed to the company’s owners, who have more than recouped their original investment.

The IPO proceeds, about $540 million, were mostly earmarked to pay down debt.

“WMG is a weapon of mass gouging,” David Menlow of IPOFinancial.com told CNBC. “There’s too much money going around,” he added, citing a web of bankers fees and executive bonuses tied to the IPO.

Investors also want “a quantifiable growth curve,” he said, while the future of the music biz looks more like a question mark. The core business — CD sales — continues to erode. New revenue streams, like the highly touted ringtones and ringbacks, are still a small part of overall sales.

WMG supporters call the tepid offering a victim of the tough IPO environment and a rocky market.

“But this wasn’t about one day of trading. The long-term strategy is to pay down the costlier part of the debt and have access to the public markets,” said one.

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