EMI, Warner Music locked in takeover feud

LONDON - EMI and Warner Music were locked in a two-way US$4.6 billion ($7.71 billion) takeover battle today, with each trying to acquire the other to create a combined company that would shrink the industry to three main players.

London-based EMI Group Plc, home to Coldplay and Robbie Williams, said it had rejected a £2.5 billion ($7.6 million) cash offer from its smaller US rival, calling the bid "wholly unacceptable."

At the same time, EMI revealed that it had sweetened its takeover bid for New York-based Warner Music Group Corp., which features artists including Madonna and Red Hot Chili Peppers, to US$31 a share or US$4.6 billion in total, from its original May offer of US$28.50.

The new bid was also rejected. Warner Music, the world's fourth-largest music company, said today its board unanimously rejected EMI's revised proposal, citing preconditions in the plan which would "increase execution risk."

Warner Music said EMI's offer calls for the sale of its publishing unit Warner/Chappell Music prior to a deal, as well as the underwriting of a "substantial rights offering."

The company said its own offer for EMI does not include such terms as the prior sale of EMI's music publishing business, nor would it carry an equity financing condition.

The publishing units of major music companies have been a stumbling block in previous merger discussions with antitrust regulators, particularly within the European Union.

EMI Music Publishing is the largest global music publisher, followed by Warner/Chappell, and industry analysts expect at least one would have to be sold for a merger to occur.

The timing of the negotiations is also complicated by Bertelsmann AG's current sale of BMG Music Publishing, which owns the copyrights to thousands of songs. BMG Music is estimated to be worth at least £1.04 billion ($3.16 billion), and both Warner and EMI are among the suitors.

EMI shares rose 9.6 per cent to a four-year high of 311 pence in early trading, and closed on the London Stock Exchange at 307-1/2 pence.

Trading volume in EMI today was considerable, with 128.8 million shares traded, more than 15 times its average daily volume of 8.24 million shares.

Warner Music shares were up US$1.04 or 3.8 per cent to US$28.27 on the New York Stock Exchange in afternoon dealings after reaching as high as US$28.78 earlier.

Both EMI and Warner Music touted their respective offers as superior and capable of delivering better value to shareholders but agreed that combining the companies was a worthwhile effort.

Financial advisers for both are still engaged in talks, people close to the situation said, though it remained unclear whether either company could raise its offer again.

"I think it will die down," said one person close to EMI, who requested anonymity. "There's nothing more to come from us (today)," the source added.

Analysts ultimately believe a deal will be struck between the two companies, but exactly when remains up in the air. They estimate that a merger would produce several hundred million pounds of cost savings.

The developments are the latest in a years-long quest to put the companies together, creating a rival on par with majors Universal Music, owned by French conglomerate Vivendi, and Sony BMG, a joint venture between Japan's Sony Corp. and Bertelsmann.

An attempt to merge the companies in 2000 was rejected by European antitrust regulators, and EMI lost out to Warner Music's current ownership when Time Warner sold it in 2003.

Warner Music on June 14 offered 315 pence a share for EMI, a bid that was rejected about a week later and accompanied by a raised counter-offer of US$31 a share. A few days later, Warner Music sweetened its bid to 320 pence.

Analysts and industry executives had speculated that Warner Music's main owners, including Chief Executive Edgar Bronfman Jr. and a group of private equity firms, were eager to sell their stakes and cash out of their two-year-old investment.

"Today, it seems that conventional wisdom was wrong," said another person close to the situation. "It's clear that Warner rejecting the US$28.50 offer wasn't just a negotiating tactic."

- REUTERS