EMI says it'll okay a $4.7B takeover

It accepts a private equity group's deal, but Warner Music could up the ante.

Associated Press
Published May 22, 2007

LONDON - EMI Group PLC, home to the Beatles and Coldplay, agreed to a $4.7-billion takeover by a private equity group on Monday, but the deal raised speculation of an all-out bidding war for the struggling music company.

EMI, which has long flirted with Warner Music Group Corp., said that Terra Firma Capital Partners' offer was the best among a number of proposals it received.

However, analysts said that the $5.23 per share offer from Terra Firma could flush out a higher offer from Warner Music, already reportedly looking at EMI's books, as well as other potential bidders.

EMI's shares soared on news of the offer, which was made just before the closing bell on the London Stock Exchange, finishing 8.5 percent higher at $5.30.

"The global music industry is undergoing significant change and, whilst EMI is confident in its ability to deliver its recently announced restructuring plans, significant uncertainty exists as to the timing and extent of future market developments, " said EMI chairman John Gildersleeve.

"Terra Firma's offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company, " he added.

Unlike a tie-up with Warner Music, a private equity deal would be untroubled by regulatory hurdles and could be completed much more quickly.

Music companies have been looking to consolidate as the market for compact discs declines rapidly. The International Federation of the Phonographic Industry estimates that overall music sales fell around 3 percent in 2006 and the doubling of digital music sales failed to compensate for falling CD sales and digital piracy.

EMI unveiled a raft of cost-cutting measures when it issued its first of two profit warnings early this year and announced the departure of two top executives.

It confirmed those warnings Monday, posting a 15 percent drop in sales to $3.5-billion.

EMI has blamed the industry decline, citing disappointing North American CD sales.

But analysts say that the overall industry's woes do not entirely explain EMI's poor performance.

They instead highlight EMI's persistent weakness in the United States, lack of promising new tunes and internal control problems.