Market Report: EMI buyout rumour is sweet music to investors

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The Independent Online

News of an accounting fraud at its Brazilian subsidiary sent shares in the music publishing group EMI Group sharply lower last week, but the word in the market is that investors could be about to be offered an escape route. If traders are to be believed, management is mulling a buyout at 320p per share, valuing the company at £3.6bn, including debt.

With the European Union likely to thwart any further attempts at consolidation in the music publishing industry, traders said that management believe that the best way to take the company forward is to take it off the public markets. Traders said that at least the company is in a position of relative strength in comparison to where it was a fortnight ago, when it warned that first half revenues and pre-tax profits would be a third lower than last year. Robbie Williams, an EMI artist, has the current number one selling album. Shares in EMI Group added 4.5p to close at 269.5p yesterday, despite a downgrade from Numis Securities. Traders said that an offer could be made before the end of the week.

Brokers followed up strong third-quarter numbers from the publishing group Pearson on Monday by increasing their price targets for the shares. Deutsche Bank upped its target to 750p while Citigroup reiterated its "buy" recommendation. The sole voice of caution came from Merrill Lynch, which retained its "neutral" stance despite describing the results as "solid progress" and upping its target to 790p. The shares closed 4.5p firmer at 773.5p.

Brokers were moving in the opposite direction with Cadbury Schweppes, 1.5p worse at 527.5p, which surprised no one on Monday by scrapping its margin growth targets. Joint house broker UBS cut its target price to 600p from 640p while JP Morgan thinks the shares are worth just 510p.

In the wider market, London shares were flat following mixed US economic data, despite some strong earnings numbers from US companies. AstraZeneca hit a four-month low, closing 53p worse at 3,098p, while the weaker oil price sent BP another 8.5p worse to 583p and Cairn Energy 30p lower to 1,755p. However, a decent day for miners and financials was enough to send the FTSE 100 index 2.4 better by the close to 6129.2.

David Ross, chairman of National Express and one of the founders of Carphone Warehouse, raised his holding in the bus company by buying 625,419 shares at 973.1p per share, worth £6m. Richard Bowker, the group's new chief executive, has some work to do before he catches up with Mr Ross on the spare change front, invested £25,000 in his employers by acquiring 2,554 shares at 971.5p. National Express shares added 8.5p to close at 975p on the news.

There was an audible sigh of relief from ARM Holdings investors yesterday as the malaise affecting CSR and Wolfson appears to have passed ARM by. Pre-tax profits were up 11 per cent to £21.2m, in line with forecasts, and Merrill Lynch, ABN Amro and Deutsche Bank all reiterates their "buy" recommendation. The shares closed 8.75p firmer at 117.75p.

Savills, the estate agency and property development group, was also sharply higher after news that CB Richard Ellis, the surveying group, will buy a 19.6 per cent holding in the company, sparking takeover speculation. The stake is owned by Trammell Crow, which yesterday accepted a $2.2bn offer from Ellis. Savills closed up 20.5p at 603.5p.

Leading the mid cap fallers was fund manager F&C Group. The company revealed a marginal fall in assets under management for the third quarter. Even though F&C has £106bn of assets, rivals such as Amvescap have reported strong growth in the last quarter. Broker Altium Securities upped its recommendation on the shares, but still believers that investors should reduce their exposure to the shares. F&C closed 8.5p worse at 181.5p.

Egdon Resources, the gas storage group based in Dorset, where the company is developing a salt cave gas storage facility it hopes will eventually supply 5 per cent of the UK gas market, reported results in line with expectations. Perhaps of more interest to investors is the announcement that Egdon will demerge its storage business within the next six months, to concentrate on its oil and gas exploration business. A placing with institutions at 190p raised another £10.9m while house broker Seymour Pierce upped its target price for the shares to 280p, as the stock closed 5p worse at 200.5p.

Finally, Zamano had a good debut on Aim as shares in the mobile data services provider closed at 28.5p, having been placed by broker Seymour Pierce at 24p.