Warner Music Group’s bid to acquire Believe faces a hurdle

Warner Music Group (WMG) has confirmed that on February 21, 2024 it had approached Believe SA, a global digital music company headquartered in France and listed on the regulated market of Euronext Paris, to initiate discussions with respect to a potential combination of Believe with WMG and that it indicated on February 27, 2024 that, at this stage, WMG thought it could value Believe at a price of at least €17/share based on currently available public information.

In its release issued recently, WMG confirmed the indications contained in the press release of the ad hoc committee of the Board of Directors of Believe published on March 1, 2024, which reiterates, in particular that WMG’s approach was made to Believe on a confidential, exploratory and non-binding basis and that WMG has requested access to a limited list of key due diligence information with a view to possibly submitting a formal offer relating to the transaction (as the case may be, by applying usual measures to protect such information).

WMG reaffirmed its interest in the potential transaction and considers that such a combination would be beneficial to Believe and all of its other stakeholders (shareholders, employees, artists and labels). As opposed to the purely financial transaction contemplated by the consortium formed by EQT, TCV, and Denis Ladegaillerie, Founder and CEO, Believe, (the “Consortium”) announced on February 12, 2024, WMG would provide Believe with strategic support and financial stability to help the development and growth of the company, including by accelerating its expansion into new geographies.

In addition, WMG stressed that it envisages financial terms that would be more attractive than those announced by the Consortium. Although no decision has been taken at this stage, the transaction could be for cash only, without WMG excluding the possibility of a share component, and without any financing conditions. If necessary, and depending on the information provided by the company, the filing of the offer could be subject to obtaining authorizations from relevant competition authorities.

WMG noted that the Consortium, after having been made aware of WMG’s proposal, has decided to waive the conditions precedent relating to the block acquisitions (related to the issuance of a fairness opinion by the independent expert appointed by the ad hoc committee and the issuance by Believe’s Board of Directors of its recommendation with respect to the offer, following consultation of the company’s works council, included in the agreements transferring to it 72% of Believe’s share capital. WMG considers that such a waiver violates a number of rules of French securities regulations which are meant to protect shareholders (including the sellers and their investors) and the Company, and that the validity of such waiver could be challenged.

WMG is currently awaiting access to the due diligence information requested on February 27, 2024, and which it considers key to allow it to submit a formal proposal, as the case may be, with respect to the Transaction and confirm its indicative price of at least €17/share (coupon attached) based on the elements mentioned above.

In response to WMG’ bid, the Consortium issued a press release on March 8, 2024 indicating that, in its view, its decision to waive the Board Condition is perfectly valid and has been done in full compliance with French regulations. The Consortium confirmed that it will, after completion of the Blocks Acquisition, file a mandatory tender offer to acquire the remaining 28% free float at the same price of €15 paid to the selling shareholders of the blocks as required by French tender offer regulation.

Meanwhile, an Ad-Hoc Committee for Believe noted that following the waiver of the Board Condition, the completion of the Block Acquisitions would put the BidCo in a position of majority control of Believe, regardless of the opinion of the board and of the report of the independent expert. This situation, unless considered legally invalid, would prevent a competing bidder from acquiring control.

The Ad-Hoc Committee considers that it is the duty of the Board of Directors to ensure that the process around the transfer of majority control and the resulting offer take place in accordance with applicable rules.

In view of differing views on the validity of the waiver of the Board Condition (It may be noted here that the BidCo has reaffirmed its valid unilateral right to waive the Board condition, while WMG considers the waiver of the Board condition to be contrary to French offer rules), the Ad-hoc Committee has contacted the ‘Autorité des marchés financiers’ (AMF), which is the Securities Commission in France.

In this request, the Ad-Hoc Committee has asked the AMF:

Whether the Consortium was able, in the prevailing circumstances, to waive freely and unilaterally, the Board Condition, since it had the power to do so in its contracts with the sellers of the Blocks, or
Whether, in view of the initial Board Condition and of a third party preliminary proposal at a potentially higher price, the principles of tender offers, including the principle of free confrontation of offers and competing offers, prevented such waiver of the Board Condition.

In view of these circumstances, the Ad-hoc Committee has decided not to engage, at this stage, in WMG’s request to have access to certain confidential information, pending clarification by the AMF.