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Warner Music says EMI offer likely to be in cash
February 21, 2007 / 7:50 AM / 11 years ago

Warner Music says EMI offer likely to be in cash

<p>EMI artist Robbie Williams performs in a 2006 file photo. Warner Music Group said on Wednesday any takeover offer it might make for EMI Group Plc would probably be all cash. REUTERS/File</p>

LONDON (Reuters) - Warner Music Group WMG.N said on Wednesday any takeover offer for Britain’s EMI Group Plc EMI.L would probably all be in cash, briefly boosting the London-based company’s shares.

The U.S. group said its statement was to clarify that its shareholders would not be required to notify their interests in Warner Music under British takeover rules.

Warner Music, the world’s fourth-largest music company and home to Madonna and Red Hot Chilli Peppers, said on Tuesday it had approached EMI about a possible bid and that it had the support of Impala, the trade group for independent music labels which has previously challenged consolidation in the industry.

The approach is the latest twist in a seven-year battle in which EMI, the world’s third-biggest music group, and Warner Music have each tried to buy the other.

Both groups are struggling with a decline in physical music sales as digital downloads gain hold, and have also suffered from their artists producing fewer hits recently.

A tie-up would give both sides access to more music and the ability to cut costs. It would also help solve EMI’s historical problem of having the smallest market share of the four music majors in the United States -- the world’s largest music market.

Analysts believe any bid for EMI, which has issued two profit warnings this year, is likely to be pitched around 260 pence a share. Warner offered 320p a share for EMI last year.

The shares closed at 240 pence on Tuesday, valuing the home of Robbie Williams and Coldplay at about 1.9 billion pounds ($3.7 billion), and they rose again on Wednesday almost 2 percent to 244 1/4 pence on the Warner cash announcement.

At 1225 GMT they had fallen back to 240 3/4 pence.

RELUCTANT EMI

“There seems to be a view in the market that the worse things are from a trading point of view at EMI, the more likely a bid will come in,” Bridgewell analyst Patrick Yau said. “I suspect that investors would much rather take cash than equity in Warner at this stage.”

Yau said however that there seemed to be a reluctance on the part of EMI to engage in a discussion with its U.S.-rival.

”They rejected a bid up at 320 pence from Warner and they rejected a bid from Permira at 310 pence so if they now accept a bid at, say, 260 to 280 it looks like the management team loses face.

“Perhaps it wants more time for the recorded music business to recover so it can command a better price.”

But analysts also warn that any fresh offer could run into the same regulatory problems that have hindered previous bids.

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 Corp’s (6758.T) Sony Music and Bertelsmann’s BERT.UL 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.

The European Commission is now examining the refiled Sony-BMG bid, which would create the world’s number two music company, with a deadline of March 1, and it is then expected to open a further investigation that would last 90 working days.

Analysts say the agreement with Impala was a clever move designed to silence a potentially vocal critic but any new combination will still be looked at very closely by European regulators.

One area of contention would likely be within the publishing business and industry analysts say regulators would be unlikely to approve of a merger unless they were to spin off one of their publishing units.

Music publishers have become increasingly attractive properties because they are shielded from some of the piracy issues that have troubled the rest of the industry.

additional reporting by Martinne Geller in New York and Mark Potter in London

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