Demerger is music to EMI

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The Independent Online
LEADING City broker SBC Warburg may lose at least half a client as records-to-TV-rental giant Thorn-EMI presses on with the planned pounds 4bn- plus demerger of its music division.

The group, which reports interim results on Tuesday, the day after the UK launch of its Beatles Anthology CDs, confirmed it has now started a "beauty parade" of Warburg rivals to pitch for the rump non-EMI business.

That takes in Radio Rentals in the UK and the more than 1000-strong Rent- a-Center chain in the US, while EMI will be left with the more valuable EMI and Virgin music labels, HMV records and Dillons bookshops in the spin-off set for early next year.

Sir Colin Southgate, the chairman, is not expected to unveil further demerger details this week, or rumoured bid approaches for EMI from the likes of Disney.

Company sources say, however, that merchant bank advisers are working overtime on the plans, first announced in July, and "Thorn Group plc" has been adopted as the working title of the rentals rump. Analysts expect pre-tax profits of between pounds 170m and pounds 182m for the first half to end- September, up from pounds 125.8m last year.

Looking ahead to the Christ-mas quarter, brokers expect EMI to power ahead, boosted by the Beatles, Queen's latest release and country superstar Garth Brooks' new album.

"They're going to be multi-million sellers that will boost market share. Next year will be another record for EMI," said analyst Greg Feheely at brokers Kleinwort Benson.

KB values EMI at anywhere from pounds 3.7bn to pounds 6.5bn in the event of a bid, and Disney, MCA and MTV cable firm Viacom lead the pack of possible suitors. With Thorn Group reckoned to be worth in excess of pounds 2bn, that puts a value of more than pounds 17 on the shares, against pounds 15.30 now and around pounds 7 on Sir Colin's appoint-ment in 1989.

Since then he has transformed the group, selling off defence, lighting and security, and closing the loss-making Rumbelows chain last April. EMI, meanwhile, has been bolstered by the pounds 590m acquisition of Virgin Music from Richard Branson three years ago. However, hiccups, still abound. Analysts warn Thorn may yet be hit by a fine of up to $100m (pounds 64m) in Louisiana over Rent-a-Center, which has been dogged in the past by allegations of over-charging and strongarm tactics in credit collection.