Rumours grow that private equity will bid for troubled EMI
Saturday 17 February 2007
The music industry is alive with rumours that catastrophe-stricken EMI is set to fall to a takeover bid, with private-equity suitors circling the company and its rival, Warner Music, waiting in the wings.
A former head of EMI's recorded music division, "Lucky" Jim Fifield, and Martin Bandier, outgoing chairman of the company's music publishing arm, are among the names being touted as potential leaders of a private-equity bid.
EMI shares traded higher for a second day yesterday, as analysts speculated that plunging CD sales would encourage competition authorities to relax the rules that have stymied consolidation among the biggest music companies.
The rumours have germinated at parties during a week of lavish awards ceremonies, kicking off with the Grammys last Sunday and including the Brit Awards on Wednesday, the day of EMI's second profit warning in as many months.
Mr Fifield got the nickname "Lucky" when he was forced out of EMI in 1998, netting a record £12m pay-off after having been passed over for the top job at the group. He explored making a bid for EMI, backed by private equity,in 2003, when he was linked with Permira and BC Partners.
The cigar-chomping Mr Bandier turned EMI's music publishing division into the most powerful in the industry, squeezing money from the company's back-catalogue of music by licensing songs for films, musicals and commercials. Since announcing his early departure from the company last year - he leaves EMI in April - there has been speculation that he could team up with private equity to bid for music publishing assets.
EMI's travails come not in the publishing division but in the recorded music business, home to contemporary artists including Norah Jones, Coldplay, Lily Allen and Corinne Bailey Rae. The company warned on Wednesday that recorded music sales would be down 15 per cent in the year ending in May, compared to a forecast of 6-10 per cent it made only in January. It says that US retailers have been sending back unsold stock because of a worse start to the year for CD sales than previously expected.
The European Commission's competition authorities are due to rule in the summer on the merger of Sony BMG which, although completed, has been challenged. The precise wording of the ruling will determine whether EMI and Warner Music, the number three and four players, might also be allowed to combine their recorded music operations, something that has been impossible in the past.
Speculative investors in EMI yesterday were betting that a private-equity bid might be launched sooner, to take advantage of the company's fallen share price. Up 2p to 221p yesterday, it was sitting above £3 when Permira made a takeover approach last December. Although Permira sources say that it is unlikely to make a new tilt at the company, other buy-out firms could move in.
Warner Music - which is largely owned by private-equity companies, although some shares trade on the New York Stock Exchange - is said to be keeping an eye on the situation. EMI and Warner talked last year, but fought over who should acquire whom. Sources said that Eric Nicoli, EMI's embattled chief executive, was not soliciting bids in the short term.
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