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Battle for EMI hots up

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EMI's board has been trying to sell the music group almost from the day it was liberated from Thorn EMI a decade ago - and it's let it be known privately for some months that it favours a private equity buy-out. This weekend a concrete offer landed in their laps.

Private equity firm Terra Firma, run by financier Guy Hands, has offered £2.4bn (or 265p per share) for the British music group, and EMI has recommended the deal to its shareholders.

The record label part of EMI saw revenue fall by 15 per cent, as overall losses increased. EMI reported a loss of £263.6m in the first three months of 2007, compared to a profit of £118.7m a year ago. That includes a large one-off restructuring charge. Pre-tax profits excluding charges weren't much better, however, down 61 per cent to £62.7m.

The advantage of private capital for EMI is that it sidesteps regulatory concerns. A Terra Firma-owned EMI would see the the Big 4 remain the Big 4. It's also reported that the private equity group would want to keep hold of the record label - rather than keep the publishing and sell off the ailing recording business.

But no one expects that Warner Music Group, which cleared regulatory issues with the indie sector, only to see its second attempt to takeover rejected by EMI, is out of the picture just yet.

Warner had a bid for EMI accepted in 1999, before abandoning the deal after feisty opposition from the independent labels. It tried again last year, but this time the price wasn't right - and it still wasn't right a few weeks ago, when another, lower offer was rejected by the board.

Meanwhile the European Commission today approved Universal's takeover of BMG Music Publishing, requiring UMG to divest some of its own publishing catalogs in the EU before it could approve the $2bn deal.

That's not the end of the story.

Indie trade group Impala, which scuppered the Sony-BMG tie-up last year, said it would mull over the acceptability of the concessions.

"Impala reserves the right to seek a reversal and stay of the decision on both procedural and substantive grounds if, after consultation with its members, it concludes the remedies are insufficient," the group said in a statement.

This is no empty threat. The Commission had originally nodded through the Sony-BMG merger, but after Impala appealed to the European Court, the Commission found itself not only on the losing side, but having to pay the bulk of the legal costs of the case. ®

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