Warner Music is actively considering an initial public offering that could value the world's fourth largest music group at up to $5 billion.
The company which was sold by Time Warner earlier this year to a financial consortium for $2.6 billion is preparing for a possible stock market debut as early as next spring, according to people involved in the plans.
"Warner Music wants to be in a position where an IPO is a clear option early next year, possibly in April," said one insider. Warner Music declined to comment. But industry observers believe that a stock market listing could clear the way for renewed merger talks with Britain's EMI, the third largest recorded music company.
EMI has twice tried to merge with Warner Music. It abandoned a deal four years ago in the face of regulatory opposition and last year withdrew an offer after being out-bid by a private equity consortium led by Edgar Bronfman Jr., former vice-chairman of Vivendi Universal.
Mr. Bronfman is understood to have had informal talks this year with Eric Nicoli, EMI's chairman. But the two sides have not pursued formal negotiations. EMI also declined to comment on Wednesday.
Nevertheless, one executive who is close to U.S. music group said: "As soon as Warner goes public and we believe that is the preferred option they could consider an approach to EMI."
Industry insiders believe that regulatory concerns over such a deal, which would not include EMI's large music publishing operations, have eased in the wake of this summer's approval for the 50-50 merger of Sony Music and BMG, the music arm of Germany's Bertelsmann. Warner Music is considering an IPO after a rapid shake-up of the company, which controls almost 13 percent of the global market. Announcing a return to profit with its maiden results last month, it said it had achieved annualized savings of $225 million after shedding more than 1,000 jobs.
A public offering would also create a potential exit for investors including Thomas H. Lee Partners, Bain Capital and Providence Equity Partners. The three private equity groups helped the buy-out consortium to raise almost $1.8 billion in debt financing to complete the deal.
Under the terms of the Time Warner disposal, the U.S. entertainment and media group has the option to buy up to 15 percent of the company at any time during the three years following completion of the sale.
An IPO, if agreed by Warner Music backers, would seek to exploit signs of a recovery in global music sales particularly in the US and Britain after four years of declining demand.