Warner Reportedly Will Acquire Chappell : $200-Million Deal Would Merge 2 of 3 Biggest U.S. Music Publishers

Warner Communications is on the verge of securing an agreement to buy Chappell & Co., one of the world’s largest music publishers, industry sources said Monday.

If completed, the deal would result in the consolidation of two of the nation’s three largest music publishers.

New York-based Warner is prepared to pay more than $200 million in preferred stock, or more than twice the sum paid just three years ago when an investor group acquired Chappell from Polygram, the sources said.

If a purchase with stock does occur, it might offer tax advantages to the sellers, while further diluting the stake of Warner’s largest--and often dissident--shareholder, Chris-Craft Industries Inc.

Neither Warner spokesman Geoffrey W. Holmes, nor Chuck Kaye, chairman of Warner’s music publishing division, returned a reporter’s calls.

But executives at some of the other leading publishing firms said they believe the deal is imminent.

“I think they’re very, very close,” said Stephen Swid, chairman and chief executive of SBK Entertainment World Inc., acknowledging that his company also bid for Chappell. (SBK is a new publisher formed last November with its purchase of CBS Songs, which ranks with Warner and Chappell as one of the three largest music publishers.)

Irving Azoff, president of MCA Music Entertainment Group, said: “We offered them $185 million, and they laughed at us. I guess I don’t understand the music publishing business.”

Michael Stewart, a former CBS Songs president, said that until recently, Wall Street investors were mostly interested in companies that sell or distribute records. But their focus has changed to those who hold or administer the copyright, which is usually the music publisher.

“Now rights are the glamour industry. Now every investment banker is anxious to get involved, and with good reason,” said Stewart, who lost a bid to take CBS Songs private last year when he still ran the division for CBS.

Music publishers promote the use of copyrighted songs on radio, television, in films, public performances or in new recordings, collecting royalties and fees to be divided with the songwriter or songwriter’s estate. The business has won new favor among investors, because it is viewed as more stable than the turbulent recorded music business.

In a 1985 interview, Chappell Chairman James Harmon told the Times: “I would say it’s almost recession-proof--if you have a good year, you’re up 10%; in a bad year, you’re just flat.”

Harmon, who is also a vice chairman of the investment firm of Wertheim & Co., could not be reached for comment Monday.

Wertheim, which controls 20% of Chappell, helped put together the investor group that acquired Chappell in 1984 from Polygram for about $100 million.

Freddy Bienstock, Chappell’s chief executive, did not return a reporter’s call.

Warner’s offer, among other things, would hinge on authorization from its board of directors. The Warner board is expected to meet today.

Warner board meetings are sometimes stormy events, however, due to frequent dissent from representatives of Chris-Craft, which owns about 17.4% of the voting shares.

Last year, Warner diluted Chris-Craft’s voting stake from 29.1% by issuing new preferred shares convertible into common stock, overriding the opposing votes of the six Chris-Craft nominees.

Chris-Craft Chairman Herbert J. Siegel could not be reached for comment Monday.