EMI Receives Bid Approach from Warner Music

CNBC.com with contributions from Reuters
Tuesday, 20 Feb 2007 | 6:22 AM ET

British music company EMI Group announced Tuesday it has received an approach from Warner Music Group that could lead to a possible takeover. But EMI said it had not received any firm acquisition proposal.

The news is the latest twist in a seven-year battle in which the two music groups have tried to buy each other.

EMI shares gained more than 7% on the back of the bid approach. The stock was down almost 20% since the start of the year. Warner Music fell 0.4% in Germany.

Analysts have speculated that EMI, home to the likes of Robbie Williams and Coldplay, would receive a fresh takeover approach after it issued two profit warnings in just five weeks.

But they also say that a fresh attempt to tie up with Warner Music could run into the same regulatory problems that stymied previous attempts.

"The regulatory outlook is still very uncertain," said Numis Securities analyst Richard Hitchcock. "But given how difficult the trading environment is -- U.S. physical sales are down 20% in the year to date -- they (Warner Music) will no doubt argue that the case for consolidation has been strengthened."

An offer from Warner Music is preferable to a private-equity deal that would effectively see EMI shareholders selling "on the cheap with no upside," Hugh Hendry, hedge fund manager at Eclectica and an EMI shareholder, told "Squawk Box Europe."

But EMI management no longer has much credibility, having tried to concentrate on physical rather than digital music and rejected earlier bids at substantially higher prices, Hendry said.

"My objection from the very beginning of this long and tiresome saga has been the exceptionally lower shareholding on the executive board of EMI, which meant that their interests are not best aligned with my interest as a shareholder in the business," he said.

CNBC Europe invited EMI to respond to Hendry's comments, but EMI did not immediately return calls.

Third Merger Attempt

EMI and Warner Music first tried to merge in 2000 and again in 2003. Last year, they were locked in a $4.6 billion battle to buy each other, but hopes of a deal were quashed in June when a European court annulled approval of the 2004 merger of Sony's Sony Music and Bertelsmann's BMG.

That ruling cast doubt on whether EMI and Warner Music would get regulatory clearance, and the companies abandoned talks until there was more clarity from antitrust regulators.

EMI's recorded music business has been hit particularly hard in recent months, with the poor performance of new releases -- such as Robbie Williams' "Rudebox" -- adding to sliding sales of traditional singles and albums in the face of digital downloads.

"If a proposal is made, it will be considered with a particular focus on conditionality, the regulatory and operational risk profile, and on valuation in relation to the company's standalone value and the value creation available from a combination," EMI said in a statement.


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