EMI still pursuing Warner in face of rival

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The Independent Online

EMI, the music group that is home to Kylie Minogue, Robbie Williams and Tina Turner, is set to continue its efforts to pursue a merger with Warner Music, even if Time Warner sells its music interests to a consortium headed by the media moguls Edgar Bronfman and Haim Saban.

Mr Bronfman was last night up against a deadline to show Time Warner that he had financial backing for a bid estimated at $2.55bn (£1.5bn), but he remained the favourite after EMI's offer of $1bn for a controlling stake was sidelined last week. EMI's chairman, Eric Nicoli, was yesterday canvassing the views of his board on the music group's next move. The company's shares have been under pressure on fears a transforming merger is once again slipping from its grasp. EMI already has suffered two failed mergers under Mr Nicoli, regulators blocking a combination with BMG and an earlier deal with Warner Music.

The company believes Mr Bronfman may agree to sell the recorded music arm of his purchase on to EMI, or accept some other form of combination. EMI has a higher calculation of the record labels' worth than Mr Bronfman because it would be able to extract cost savings estimated at £200m from a combination.

"There is a theoretical arbitrage value here, in that EMI is offering a higher value for that business," one City source said.

Mr Bronfman and his private equity backers would be left with the Warner Chappell music publishing division, which manages artists' back catalogues and, therefore, has a predictable inflow of royalties. Any deal would be fraught with regulatory uncertainty, however, and there is also personal animosity between Mr Bronfman and Alain Levy, EMI's head of recorded music. Formerly president of Polygram, Mr Levy was forced out after its acquisition by Mr Bronfman's Seagram in 1998.

It seemed unlikely yesterday that Mr Nicoli would sweeten his offer for Time Warner's business, having described it last week as "full and fair". EMI appears to be pinning its hopes on Mr Bronfman being unable to tie up the necessary financing, leaving the UK group with the only deal on the table.

Investors are worried that it will be left on the sidelines in an industry that is consolidating in order to shore up profitability. However, it may be tempted to wait, arguing that the competitive landscape has eased with Warner Music under Mr Bronfman's control rather than Time Warner's.

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