Another update. LOOKS LIKE I WAS WRONG
EMI Set for Buyout by Terra Firma; Warner Stock Jumps (Update3) 5 hours ago
By Mark Herlihy
Guy Hands, founder of Terra Firma Capital Partners July 18 (Bloomberg) --
Terra Firma Capital Partners Ltd. appeared set to win the battle to buy EMI
Group Plc, the record label for the Beatles, after both Warner Music Group
Corp. and former company executive Jim Fifield decided against making bids.
Terra Firma, Guy Hands' London-based buyout firm, is the sole bidder. The
firm in May agreed to pay 265 pence a share, or 2.4 billion pounds ($4.9
billion). As of last week, shareholders with only 3.82 percent of the stock
had accepted the offer because of the prospect of rival bids.
An acquisition by Terra Firma would mark an end to seven years of attempts
by EMI and Warner Music to buy each other amid falling music sales
worldwide. Warner Music made the right decision in not bidding, because a
purchase would have weighed on earnings and saddled it with too much debt,
said Richard Greenfield of Pali Capital in New York. The shares had their
biggest gain since the company's 2005 initial public offering.
``Buying EMI would have been far too dilutive to WMG shareholders and
created too much financial risk,'' Greenfield said in a report to clients
today. He raised his rating on Warner Music to ``neutral'' from ``sell.''
Warner Music shares jumped $1.23, or 8.9 percent, their biggest increase
ever, to $15 at 4:03 p.m. in New York. Shares of London-based EMI fell 5.25
pence, or 2 percent, to 261.75 pence. EMI shares had closed above 265 pence
every day since Terra Firma made its offer, on the expectation Warner would
Terra Firma last week extended its offer until 1 p.m. tomorrow. The buyout
firm this month secured antitrust approval to buy EMI from the
Brussels-based European Commission.
Warner, whose artists include Madonna, said last month it may make an offer.
The New York-based company said late yesterday in a statement that it
reserved the right to bid or participate in a proposal for EMI in the next
Still, Terra Firma may give Warner Music what it wants by ultimately selling
EMI's recorded-music business to Warner, said Laura Martin of Soleil
Securities in Pasadena, California. That would leave Terra Firma with EMI's
``This strategy is better for Warner Music because it allows Warner to buy
just recorded music rather than all of EMI,'' said Martin, who rates Warner
shares ``buy'' and doesn't own them.
Fifield, a former chief executive officer of the EMI Music unit, and other
former managers had been considering a cash bid that would have been at ``a
significant premium'' to Terra Firma's offer, according to a statement
issued by Fifield today. The group couldn't make an offer by the deadline of
noon tomorrow set by the Takeover Panel, according to the statement.
``The board of EMI has serious doubts about that suggestion and the
credibility of any possible offer,'' the company said in a statement.
Fifield never contacted the company, EMI said. Fifield wasn't among the
several potential bidders who studied EMI's finances, the company said.
Warner was interested in EMI's recorded music unit. Led by Edgar Bronfman
Jr., Warner is looking for additional revenue as illegal file-swapping of
digital recordings reduces sales of compact discs. Industrywide, U.S. album
sales fell 15 percent in the first half of 2007 from the same period last
year. EMI recommended that shareholders accept the Terra Firma offer.
Warner Music now will have to reduce expenses without the benefit of cost
reductions that it could have wrung out of a merger, Greenfield said. ``WMG
needed EMI,'' he said. ``Without EMI, WMG may be forced to cut its own
business farther than it otherwise would have wanted to.''
To contact the reporter on this story: Mark Herlihy in London at
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