Outlook: EMI/Bertelsmann

WILL SIR Colin Southgate, executive chairman of EMI, ever be allowed to take his bow? Sir Colin narrowly missed making a clean exit earlier this year, after the succession was bungled. Instead, he was prevailed upon to stay long enough to be spurned by Seagram in favour of PolyGram and see his share price plummet on the back of a profits warning.

Hope nonetheless springs eternal in stock markets, and every now and again the price rockets up again on talk of a takeover bid, as it did late last week. The logic of these bouts of speculation is impossible to fault. EMI is the only one of the big five international music groups which it is remotely possible to buy; it has scarcity as well as availability value.

But as Rupert Murdoch asked at a London press conference yesterday, is anyone going to pay what it takes? Mr Murdoch, together with many others keen to extend their media interests into the music industry, would dearly like to buy the company, but they seem unprepared to pay the price. Obviously, EMI would be worth more to someone with existing interests in music, but it is hard to see how any of the rest of the big five could do it without running into antitrust problems in Europe and the US.

This goes for Bertelsmann too, where EMI has admitted to high level exploratory talks. The first time the two talked was two or three years ago. Privately, a full scale merger was proposed by Bertelsmann but Sir Colin found it impossible to see how it could be made to work from EMI's perspective. Bertelsmann, a privately owned company, would have ended up a large and perhaps controlling shareholder in the merged music business. Whatever the cost benefits and industrial logic, UK institutional shareholders would never have tolerated such a dilution.

Investors may therefore need to resign themselves to the strong likelihood that EMI will remain an independent company, at least for the foreseeable future, when Sir Colin announces interim results today. As far as shareholder value is concerned, EMI is going to have find it in something other than a takeover bid.