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 

Tomorrow's Deadline

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 
six months.

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 
music-publishing unit.

``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.

`Serious Doubts'

``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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