Thorn confirms moves towards demerger

Thorn EMI is to take the first steps toward demerger following weeks of speculation about the future of the rentals and music conglomerate.

Sir Colin Southgate, company chairman, told shareholders at the annual meeting yesterday that "demerger, if it can be achieved, would be in the best interests of the businesses and the shareholders".

He said the board would consider proposals to hive off the Thorn rental operations to form a quoted company, allowing the highly valued EMI music business, one of the world's largest, to trade separately.

Analysts said that EMI, along with the much smaller retail operations of HMV, would likely attract a higher rating from investors, given its firm growth prospects. They valued the demerged businesses at between 1500p and 1750p a share.

Thorn EMI shares closed at 1361p yesterday, up 7p on the day, after rising by as much as 60p in early trading in advance of yesterday's AGM.

Analysts said the shares were likely to drift in coming months, as company management completes the process of evaluating demerger proposals. The board is to make a final decision later this year.

The announcement on a possible demerger had been widely expected, and had been one reason behind the stock's sharp appreciation since the start of the year. The market had assumed that a demerger would increase the total value of the businesses, as it would allow the highly profitable music side to be rerated.

Some analysts were still not ruling out a takeover bid for the whole group. Speculation that a bidder might be waiting to break up the company helped fuel the stock's meteoric rise.

But some analysts were more cautious."A bid may still come, but only after the company has done the work of costing a demerger and calculating the implications," one said. Disney was again suggested yesterday as a possible bidder.

Sir Colin told shareholders that there had been no bid approaches, despite speculation in the press. "My recommendation to you is to ignore the speculation. That is what I do." He said a demerger might cost about pounds 50m in taxes and a further unspecified amount in advisory fees, which analysts suggested could climb as high as pounds 50m.

The adverse tax implications of a demerger led company management to reject the idea three years ago. But massive restructuring has simplified structure and rendered the tax more manageable, Sir Colin said.