GROUP TO BUY WARNER MUSIC BRONFMAN, INVESTORS TO PAY $2.6 BILLION.

Byline: Greg Hernandez Staff Writer

Time Warner Inc. announced Monday that it had agreed to sell its music business - both recorded music and music publishing - for $2.6 billion to an investment group led by former Universal Music head Edgar Bronfman Jr.

The investment group beat a rival bid by EMI Group PLC, estimated at $1 billion, for the recorded music portion of the company. Under the terms of the deal, Time Warner has the option of buying back a minority stake in the business in the future.

The company has an eclectic roster of artists signed to its various labels, including Eric Clapton, Cher, Fleetwood Mac, Josh Groban, Faith Hill, Linkin Park, Madonna, Red Hot Chili Peppers, R.E.M. and Neil Young.

It will retain the name of Warner Music Group under the new ownership.

``Warner Music Group is one of the world's greatest recorded music and music publishing companies, and we have great faith in its potential for growth as an independent company and in long-term opportunities of this industry,'' Bronfman stated.

Warner Music is comprised of such well-known record labels as Warner Bros., Atlantic and Elektra, as well as Warner/Chappell Music, a music publishing company with more than 1 million copyrights.

Music industry analysts see the deal as a good one for Time Warner because it gives the conglomerate more money up front and provides it with more financial flexibility. Time Warner's goal is to reduce its net debt to $20 million by the end of next year.

``The question is, what will Time Warner do with the proceeds,'' said Mark May, an analyst with Kaufman Bros. in New York.

May pointed out that the company would now have the money to purchase the 21 percent stake in Time Warner Cable held by Comcast, a transaction he views as positive for both parties.

Time Warner Chairman and CEO Dick Parsons would only say that the deal would enable Time Warner to pursue growth in other lines of business.

``Despite my personal fondness for the music business, as well as for all of our wonderful managers and music group employees, I believe that this transaction is clearly on the best interests of our company's shareholders,'' Parsons said in a statement.

Smith Barney analyst Jill Krutick said she believes the deal is more beneficial to Time Warner than the proposed EMI bid, which was dropped earlier Monday, partly because it would face easier regulatory approval since it does not involve a merger.

Krutick added that the music division constitutes less than 5 percent of Time Warner's earnings and that the sale, for the company, ``represents a simple and effective way of extricating itself from a business that has been severely impacted by piracy and a drag on earnings.''

The sale marks the third major move among the industry's major music companies, coming after deals earlier this month involving Universal Music Group and the merging of Sony Music and BMG.

Universal Music Group, already the world's largest music company, reached an agreement to buy DreamWorks Records in a deal estimated to be worth $100 million. The UMG/DreamWorks music company merger came only days after Sony Music and BMG, a unit of the German media firm Bertelsmann, announced plans to combine their music units to create a company to rival the dominant UMG.

The recording industry is attempting to stem a 31 percent slide in music sales over the past three years, a downward spiral it blames largely on Internet piracy. A fourth consecutive down year is projected for this year as well.

Greg Hernandez, [phone]

greg.hernandez(at)dailynews.com