ROUNDUP EMI receives new takeover approach from Warner Music

ROUNDUP EMI receives new takeover approach from Warner Music

	Published : Tue, 20 Feb 2007 17:25 By : Agencies Print this Story

LONDON (AFX) - US music giant Warner Music has made another approach for UK rival EMI Group, pledging to sell a number of independent labels to allay the regulatory concerns that have hitherto stymied a union of the two firms.

EMI, which has issued two profit warnings since the start of the year, said Warner Music has yet to table a firm proposal since its January 24 tentative approach, and that there was no guarantee it would do so.

Still, EMI shares shot up 18 pence to 239-1/2 -- valuing the group at over 1.8 bln stg -- on hopes that the two companies will finally merge, putting to bed a seven-year, on-off takeover saga.

Analysts believe a tie-up between EMI and Warner Music could generate cost savings of as much as 150 mln stg a year, and the two companies have tried and failed to merge on three separate occasions since 2000.

Last year Warner and EMI tabled a number of bids to buy each other before a surprise European legal ruling annulled the European Commission's approval of the 2004 merger between Sony Corp's and Bertelsmann's music operations.

That threw up fresh doubts over how European regulators would view a Warner Music and EMI merger -- an issue that will not be resolved until the March 1 deadline for the publication of an EC review into the Sony/Bertelsmann deal.

'Warner looks increasingly like the natural home for EMI (but) a formal bid at this stage would face significant regulatory uncertainty as the outcome of the review into the Sony/BMG merger is unknown,' said Numis Securities in a research note.

Warner Music this afternoon outlined a number of steps it would take if the proposed takeover of EMI is found to breach UK competition law.

The safeguards include the sale of a number of smaller labels and providing funding for the Merlin initiative, a digital rights organisation established to represent the independent music sector, said Warner Music.

The Independent Music Publishers and Labels Association (IMPALA) has agreed to support the deal as long as these steps are taken, according to the US company. IMPALA continues to oppose the Sony/Bertelsmann merger.

This morning's news comes less than a week after EMI's latest profit warning, which was blamed on poor sales from key artists such as Robbie Williams and the Beatles over Christmas. The publisher of Norah Jones and Coldplay also cited weakness in the US market, which a link-up with Warner would help to address.

The profits alert prompted a flurry of newspaper reports suggesting that EMI will restructure its balance sheet by borrowing against its more stable music publishing arm, or even hive off the business from the bigger recorded music unit.

EMI has lost more than a quarter of its value since the middle of December in the wake of the two profit warnings, sparking renewed speculation of a private-equity bid.

According to market talk, potential private-equity buyers would most likely hold on to the publishing arm after selling off the recorded music division to Warner Music.

However, the latest Warner Music approach received a lukewarm response from one of the UK company's top five shareholders in EMI.

'We are not really surprised to see that Warner Music has stuck its head above the parapet as they have always been keen. As far we are concerned, the takeover approach does not really move the dial a huge distance,' said the investor, who asked to speak off the record.

simon.duke@thomson.com

sd/slm

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