Strong debut for EMI after Thorn split

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The Independent Online
EMI Group, the music arm of the former Thorn EMI conglomerate, remained a favoured takeover candidate, following its maiden day of trading as a separately quoted company.

Its shares jumped 37.5p to pounds 14.60, while its former stablemate, rentals group Thorn, saw its shares slump 17p to 391p, despite some buying late in the day. The company said prices had been broadly in line with expectations.

Analysts pointed out that EMI, which is the only top five music company not owned by a multimedia giant, was still attracting interest as a potential bid candidate. The rest of the top five - Warner, Sony, Polygram, Bertelsmann - are all either owned by hardware manufacturers or integrated media companies, a fate many analysts are convinced awaits EMI Group.

Said one analyst: "We calculate a 25 per cent bid premium in the shares, based on our fundamental valuation."

The music business has been performing well in both the US and Europe, and margins have been improving. But there are concerns that many large music companies are spending freely to develop new talent that may not add much value to the library in the future. Still, EMI is respected for its list of recording stars, ranging from the Beatles to Frank Sinatra, and analysts believe its profit margins will continue to improve in 1996 and 1997.

Thorn, by contrast, is viewed as stodgy and uninspiring. Its chain of rental shops, including Crazy George's and Radio Rentals, is a market leader in the UK, and has expanded into new fields such as computers and modems. But its growth has never been able to match the performance of EMI.

Despite the drop in Thorn's price yesterday, the two formerly wedded companies managed to trade at a 18p premium to Friday's closing price of 1833p, and analysts suggested a bidder might have to offer as much as pounds 19 a share, or more than pounds 8bn, for the EMI Group alone.

The list of potential bidders remained long yesterday, with Seagram, the Canadian company that owns the Hollywood music and film giant MCA, still the favourite. Other potential buyers are News Corporation, the TV and newspaper group, and Sony, the second-biggest music company after Warner.