A final record for Thorn-EMI

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The Independent Online
Perennial takeover candidate Thorn-EMI yesterday unveiled record profits up 27 per cent, in its last set of figures before splitting into two separate companies this summer.

But there was continuing speculation in the City that a hostile bid for the music-to-rentals conglomerate could interrupt the divorce proceedings.

"EMI is virtually the only major record company that isn't owned by a media conglomerate," said one leading analyst. Disney, the US entertainment juggernaut, continued to be a favourite potential bidder. The theme-parks- to-broadcasting company is one of the few US giants without a recording label.

Simon Duffy, group finance director, said yesterday that the company had not received any approaches. "If we did, of course we would consider what was in the best interests of shareholders."

Potential buyers could wait, however, until Thorn and EMI Group are trading separately before launching a bid. The demerger will be put to shareholders on 16 August, and Thorn is expected to begin trading separately the morning of 19 August, the company revealed yesterday.

Pre-tax profits soared to pounds 539m in the year to 31 March, from pounds 424m last time, buoyed by record sales at EMI Music and solid growth in its rentals division.

The results cheered analysts, who predicted double-digit growth for both EMI Group and Thorn, the two successor companies.

"We didn't massage these figures in advance of the demerger," Mr Duffy said yesterday. "We just let the chips fall where they might."

The shares gained 5p to close at 1,843p, compared with analysts' estimates of pounds 20-a-share for the two companies following demerger. If shareholders approve the split they will be offered one new share in Thorn, the rentals company, for every Thorn-EMI share they own. Analysts expect Thorn shares to trade sharply below those of EMI Group, which, as a pure music and retail play, would fetch a higher market rating.

The two companies will divide net debt of pounds 391.4m, with Thorn taking pounds 260m. Both are expected to follow progressive dividend policies, in line with present practice.

Thorn-EMI declared a final dividend of 29.5p, or 40p for the whole year.

Senior executives working for Thorn following the demerger will receive new options, while EMI executives will see their current options repriced to reflect the relative value of the new shares.

Sir Colin Southgate, who has overseen the radical restructuring of Thorn- EMI over the last 10 years, will be chairman of both companies, although he is expected to be eventually replaced as chairman of Thorn by Hugh Jenkins, currently non-executive deputy chairman. Michael Metcalf will remain as Thorn's group chief executive.

Mr Duffy said last year's results were boosted by a strong performance in the US and European music businesses, where 30 EMI titles sold more than one million copies. Best-sellers included albums by Garth Brooks, Queen, the Rolling Stones, Pink Floyd and the Beatles (the Anthology).

EMI's music performance was in sharp contrast to the fortunes of rivals Sony and PolyGram, both of which announced disappointing sales earlier this year. Mr Duffy said the market in the US was flat last year, which made the company's performance "that much more satisfying".