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Edition: U.S. Article Comments (0) Follow Reuters Facebook Twitter RSS YouTube Read Buffett remains solid on the American economy 4:29pm EDT Libya says Gaddafi survives air strikes, but son killed | 4:27pm EDT Sell in May and go away? 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Email Print Related News Exelon to buy Constellation Energy for $7.9 billion Thu, Apr 28 2011 Furor at Sony after hackers steal Playstation user data Wed, Apr 27 2011 Lawson Software to go private in $2 billion deal Tue, Apr 26 2011 China's Minmetals bows out to Barrick Gold's $7.7 billion bid Tue, Apr 26 2011 Exclusive: Apple to beat Google on cloud music: sources Fri, Apr 22 2011 Analysis & Opinion Jeff Bezos is secure The U.S. capitalist love affair with Communist China Related Topics Entertainment » Fashion » Music » Stocks By Yinka Adegoke NEW YORK | Sun May 1, 2011 4:48pm EDT NEW YORK (Reuters) - Final buyout bids for Warner Music Group are due on Monday and the company could be sold by the end of the week in a deal valued at over $3 billion, according to a person familiar with the matter. The third round of bids is led by two competing financial groups Len Blavatnik's Access Industry and a joint bid by Tom and Alec Gores' Platinum Equity and Gores Group, according two people. The Warner Music sale process is taking place against a backdrop of ongoing declines in music sales as executives struggle to figure out new business models to guarantee the future of the industry. While Warner Music continues to generate reasonable levels of cash on its balance sheet -- a key metric for investors -- it will still be seen as a risky investment in a very tough market. Two weeks ago the second-round bids came in around $3 billion according to three people who asked not to be named as the process is confidential. Ron Burkle's Yucaipa Co, dropped out of the bidding late last week, the first person said. Matching bids from two major music names fell short of what Warner's board was looking for from strategic buyers in the second round but there is still a chance that rival music companies will be involved at a later stage in picking over some of Warner Music assets. While the final round bids are due early this week, there is no certainty a deal will get done, the first person said. All of the parties declined to comment. Warner Music's board effectively put itself up for sale in January when it appointed Goldman Sachs and AGM Partners to assess interest from external parties. Since then its shares have risen nearly 60 percent to $7.47 at the end last week. One reason why the Warner Music board is open to moving ahead with financial bidders is because it fears an expensive delay in the process by regulators if the company is bought by another music company, the first source said. Regulators have scuppered music deals in the past including at least one of several attempts to combine Warner Music and EMI over the last decade. Warner's board, led by Chief Executive Edgar Bronfman, had demanded a premium from the music companies for their second-round bids. BMG Music Rights, a joint music venture between German media giant Bertelsmann and private equity firm KKR, gave up on staying in the bidding process early last week declining to raise its bid any higher. BMG Music could still be involved in the process said a third person, but it is now likely to wait till the end to see who wins out and then try to see what publishing assets it might be able to buy from the new owners. Sony Corp is also still on the sidelines of the process, according to another person. But it faces the same high hurdles from Warner's board. "The key issues for Warner Music's board are price and simplicity of the transaction process," said one of the people familiar with the talks. GOOD VALUE Music companies say they have the upper hand in the long-run. Compared to financial buyers, lenders favor company bids in such leveraged buyouts. Warner Music Group is highly leveraged with around $1.1 billion in equity and $1.9 billion in debt. It is expected to generate around $333 million in earnings before interest, depreciation and amortization (EBITDA) in fiscal year 2012 according to Thomson Reuters data. This means Warner Music is currently being valued at around nine times future earnings. Music companies believe they could cut tens of millions of dollars in annual costs by combining with Warner helping to lower the valuation multiple to much lower than eight times thereby making it a less risky bet for lenders. One likely outcome of the process is that whoever wins Warner Music will probably also make bid for EMI Group and take advantage of the potentially huge value that could be created by cutting costs across in a combined company, say industry watchers. EMI is currently owned by Citigroup. Citigroup is expected to put the music company up for sale in the near future after taking control from private equity firm Terra Firma in February. (Reporting by Yinka Adegoke; Editing by Diane Craft) Entertainment Fashion Music Tweet this Share this Link this Digg this Email Reprints We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language, all capital letters or appear to be spam, and we review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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