A sale of Warner Music Group, whose shares surged nearly 30 percent on Friday on news of the possibility, is not likely to happen until prospective buyers see what happens with EMI Group, its smaller rival whose owners are also exploring strategic options.

Warner Music has hired Goldman Sachs as an adviser to explore a sale, a source familiar with the matter said on Thursday. [ID:nN20176555] On Friday, Warner Music shares rose $1.29, or 27.3 percent, to close at $6.01 on the New York Stock Exchange.

But analysts and music executives told Reuters any serious buyers would wait to see what happens to beleaguered EMI -- owned by private equity firm Terra Firma and facing a debt deadline with Citigroup -- before considering Warner Music assets.

Talks among Terra Firma founder Guy Hands, EMI and Citigroup have intensified since the start of the year, a person familiar with the situation said on Friday.

Earlier, Goldman Sachs had been retained by Warner Music to explore buying the assets of EMI Group from Terra Firma. One possibility under consideration was for Warner Music to sell its song publishing unit Warner/Chappell and use the funds raised to buy EMI.

EMI, which has struggled with loss of market share in recent years even as sales have fallen across the industry, faces a debt covenant test on March 31. If it fails, that could force Terra Firma to hand over EMI to debt holder Citigroup.

Hands is trying to negotiate a favorable outcome for his fund investors ahead of the possibility Citigroup might take control of EMI and sell the assets at fire sale prices, the source familiar with the Terra Firma-EMI-Citi talks said.

Music insiders have long expected EMI to be broken up, with its record labels like Capitol and Virgin sold off separately from its songs catalog unit, EMI Music Publishing.


Private equity firm Kohlberg Kravis Roberts has approached Warner Music's management to express interest in acquiring the company, with a particular interest in the Warner/Chappell unit, a source said.

KKR and German media company Bertelsmann's joint venture BMG Music Rights have been snapping up smaller catalog assets since being founded in 2007.

Another party interested in Warner/Chappell or EMI Music Publishing is Sony/ATV Music Publishing, a source said. A joint venture between Sony Corp and the estate of late pop star Michael Jackson, Sony/ATV is led by Marty Bandier, the veteran music publishing executive who helped build up EMI's song catalog.

Universal Music Group, owned by Vivendi, and Sony Music Entertainment are also on watch in case Warner Music or EMI decides to break up music assets for sale, two people familiar with the situation said.

Any buyer is viewed as likely to hold out for EMI's valuable assets before looking closely at Warner Music, whose situation is less pressing.

We believe there is a low likelihood of anyone stepping in to buy Warner Music ahead of the EMI auction that is looming later this year, Richard Greenfield, analyst at BTIG, said in a client note.

All roads go through EMI on this one, said Wells Fargo bond analyst Bishop Cheen. I suppose KKR could make a move exclusive of EMI but it's unlikely.

Warner Music shares are down more than 65 percent since the initial public offering at $17 in 2005. The company has struggled, like others, with shrinking music sales. The world's No. 3 music company is home to recording legends such as Led Zeppelin and the Bee Gees and to current stars like Green Day and Death Cab for Cutie.

Also on Friday, Warner Music said a trial court in Paris had found its chief executive officer, Edgar Bronfman Jr, guilty of charges stemming from certain trades he made in Vivendi Universal stock in 2002.

The court imposed a fine and a suspended sentence on Bronfman, a former Vivendi vice chairman.

Bronfman said in a statement that he intended to appeal the decision.

(Reporting by Yinka Adegoke and Jennifer Saba; Editing by Lisa Von Ahn, Gary Hill)