Bid talk sends Thorn EMI shares soaring

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The Independent Online
Shares in Thorn EMI soared yesterday on talk that a bid for the company's music subsidiary, EMI, was imminent. Dealers said interest in the stock was frenzied, as a range of blue-chip names, mostly American, were tipped to be preparing an offer.

Time Warner, the US media conglomerate, and Sony, the Japanese electronics and entertainment company, topped the list of potential buyers. The shares, which have nearly doubled in a year, closed last night at pounds 18.43p, up a spectacular 140p on the day. Thorn-EMI had no comment on the speculation last night.

Analysts said the price rise was linked to Thorn EMI's plans to demerge its highly profitable music division this summer, in a bid to enhance shareholder value. Hoare Govett, the investment bank, estimates the break up value to be pounds 19.50 a share.

Preparations for the demerger are almost complete, with approval received from most tax jurisdictions. The demerger is expected to cost about pounds 75m in administration and fees.

"It makes sense for a bidder to wait until the company has done all the hard, complicated work, and then step in with a bid," one analyst said yesterday.

The Thorn division, which operates rental shops worldwide, is worth an estimated pounds 2bn, according to analysts' estimates. EMI, one of world's leading music publishing and recording companies, is particularly strong in Europe. It owns the Virgin Music Group, which publishes the Rolling Stones, Smashing Pumpkins and Simple Minds. Worth about pounds 6bn, it could fetch far more from a buyer eager to expand in the European market.

"EMI has always had a few problems in the US," one analyst said. "A logical buyer would be one of the existing US music companies, which could improve margins at EMI in the US and get the European market too." Among the candidates are MCA, the film and music conglomerate controlled by Seagram, the Canadian distilling and media company, and Sony, which owns Columbia Pictures and a lucrative music business.

But other analysts said Disney, the US entertainment giant, was a more llikely bidder, as it does not yet have a significant presence in the music business. As a major film producer, Disney could be expected to benefit from the additional sales generated by its soundtracks.

Another possibility is Rupert Murdoch's News Corporation, one of last remaining global media empires that does not control a major recording label.

Sir Colin Southgate, Thorn EMI's chairman, has said in the past that any bidder would have to offer a "maxi price" to derail the demerger plans. He has dismissed speculation in the past, and has been the key architect of the demerger plan, viewing it as the logical way forward for the group.

Under the demerger, Sir Colin would be chairman of both groups, while James Fifield, president of EMI, would continue in that role.

Senior executives, including Mr Fifield and Sir Colin, stand to make millions out of share options. At last night's price, Sir Colin's potential gain is just under pounds 6m.

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