The Investment Column: No value in the EMI demerger

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The Independent Online
Demergers may be the management fad of the moment when it comes to gingering up shareholder value. But try telling that to beleaguered investors of Thorn and EMI. Shares in both have plummeted since the music and retail business did the splits in August 1996 with shares in Thorn losing two-thirds of their value and EMI falling by a third.

Management claim both businesses have been hit by unforeseen circumstances since they were separated. They have a point. Shares in the combined group were ramped up to ludicrous levels ahead of the demerger on the back of speculation that EMI would be snapped up by a larger rival such as Seagram or Disney. That has since evaporated while EMI's performance has been hit by strong currency and a slowing down in the growth of the worldwide music business.

At Thorn the business has been savaged by the rapid decline in the UK rentals market, increased US competition and litigation over credit practices.

At EMI currency factors knocked pounds 14m off operating profits while global music sales are now growing at just 1-2 per cent a year - compared to double digit rises a few years ago. Economic turbulence in the Far East is a key worry. The region accounts for 20 per cent of group sales.

A bid is still possible though with a people business it would need to be agreed. On downgraded full year forecasts of pounds 343m the shares are 18 times forward earnings. They are a hold. At Thorn, the long-overdue re- vamp of the business may finally deliver value to shareholders. The shares have now fallen so far that the downside is starting to look limited.