It’s doubtful Warner Music Group and EMI will be like the protagonists in Harrison McEldowney’s fond duet about love and miscommunication and say, “Let’s Call The Whole Thing Off,” but they’re clearly not finding it easy to tie the knot.
Having got halfway to the altar in 2000, 2001 and 2003, when either rival suitors or monopolies commissions came up with just impediments as to why the pair shouldn’t wed, it’s beginning to look as if their 2006 courtship is also far from a fairytale romance.
EMI was first to plight its troth with a May 1st offer of $28.50 a share in cash and stock, which valued Warner at $4.2 billion, but the dowry wasn’t enough for the U.S. company’s shareholders. Within 24 hours, Warner turned it down.
On June 14th, Warner bid $5.72 a share for the British company and, when that proposal was turned down, came back with an improved June 27th offer of $5.81 a share. That values EMI at $4.54 billion, but that was also knocked back on June 28th.
Squeezed between the two Warner bids, EMI had an improved $31 per share offer turned down.
The business pundits at the U.K.’s Financial Times are now torn between suggesting either EMI will make a new bid for Warner or the American company will up its offer for the British one. But short of calling the whole thing off, there doesn’t appear to be another course of action.
Immediately after its June 27th offer was declined, Warner put out a statement saying its board “agrees with EMI that there are potential merits in combining the businesses,” but it’s still adamant that both companies’ shareholders will benefit most if the U.S. company does the buying and the British one does the selling.
At press time, that comment hadn’t drawn a response from EMI.
The reasoning behind Warner’s statement is that the EMI bids include pre-conditions that increase the risk of execution, including the presale of Warner-Chappell Music publishing and underwriting a substantial rights offering.
Warner and its backers might be able to come to the table with more cash and less strings attached to it, but – whichever company does the buying – one of the two publishing houses will need to be offloaded at some point.
It’s highly unlikely that either the U.S. or European monopolies authorities would allow the newly merged company to hang on to Warner-Chappell Music and EMI Music Publishing.
WMG said its proposal is not subject to an equity financing condition, and neither does it depend on “the presale of EMI’s music publishing business,” but it’s hard to see how it can raise so much cash without needing to see some sort of short-term return. And a “post-sale” of one of the publishing operations would still need to go through before the deal is signed, stamped and sealed.
– John Gammon