U.S. News

EMI Backs Terra Firma Bid After Warner Walks Away


British music group EMI urged its shareholders on Wednesday to start selling to private equity group Terra Firma after long-term suitor and rival Warner Music Group finally ruled out a counterbid.

In May EMI recommended a 2.4 billion pound ($4.9 billion) cash takeover by the private equity group led by Guy Hands, but investors have been waiting to see if Warner would offer a higher price.

The U.K. Takeover Panel set Thursday as a deadline for Warner and another suitor, Jim Fifield, to declare their intentions.

Fifield said on Wednesday he had withdrawn his interest due to a lack of time. He said he had been working with a management team comprising a number of ex-EMI executives and that any offer would have been all-cash and at a significant premium to Terra Firma's offer.

EMI later disputed that the issue was time and said it had serious doubts about the credibility of any possible Fifield offer, because he had not engaged in due diligence.

EMI's share price had stayed above the Terra Firma offer price of 265 pence a share, implying the market expected a counterbid, until recent weeks when it started to edge lower.

It was down 5 pence or 1.9% at 262 pence on a trading volume of more than 60 million shares, compared with an average of 13.7 million in the last 30 days.

Warner's share price, which had fallen more than 20% after Terra Firma announced its bid on fears that the music group would try and beat it, was up 10.8% in early U.S. trade on Wednesday.

Thursday's the Deadline

Any Warner bid would have probably faced regulatory hurdles as a similar music deal is still being examined by the European Commission, and analysts had said it would need to pay around 300 pence for EMI at a time when music revenues are falling.

EMI said on Wednesday it had noted the statement by Warner and encouraged its shareholders to accept the offer as soon as possible.

Terra Firma has extended its offer period for EMI three times, and the latest deadline for shareholders to accept the deal is on Thursday. It could extend it again until the end of this month. Terra Firma said on July 13 it had received acceptances from shareholders owning 3.82%.

Bridgewell analyst Andrew Walsh said a third-party private equity group may still emerge, but he thought it was unlikely this late in the process.

Both Warner and Fifield said they reserved the right to make another offer for EMI if a third party made a bid for the group.

Analysts have speculated that Terra Firma may sell EMI's recorded music division to Warner at a later date and once the European Commission has ruled on the Sony BMG merger, but all parties involved have declined to comment on this.

Sources familiar with the situation told Reuters when Terra Firma made its bid that the group intended to keep EMI together and did not have a new management team lined up to take over.