Nicoli Plans To Poison The Water

Edgar Bronfman Jr. will need to be quick if he’s sending another Warner Music raiding party to circle the EMI wagon train because the British company’s sheriff is planning to poison the water.

U.K. business analysts expect the major U.S. label to show its seemingly irresistible force by making a third bid for the London-based music group, but EMI chief executive Eric Nicoli looks determined to be an immovable object.

As the Sunday Times predicted at the beginning of the year and Financial Times reiterated on the eve of last week’s interim year-end figures, EMI intends to cut the cost of interest payments by raising a loan securitised against the income from its publishing catalog.

None of the private equity groups reportedly stalking EMI could extract the same level of cost savings that a Warner takeover could produce. But the U.S. company’s options for restructuring the combined businesses would be severely restricted if Nicoli had already mortgaged the publishing income.

The U.K. media is confidently predicting another Warner bid, but Nicoli’s plan to turn his company around without either Warner or private equity involvement gained a little momentum when the interim figures wrong-footed the analysts by being much better than expected.

Investors had reacted to a February 14 profit warning by sending EMI shares down to 210.75p, the lowest since late 2005. The bears who let go at that price were too pessimistic: The announcement of the interim figures bumped the stock back up a little more than 11 percent to 235p.

EMI last summer turned down a 320p per-share approach from Warner and, at the end of February, a second offer believed to be about 260p.

EMI will report definitive results on May 23, with the year-on-year revenue drop expected to be about 15 percent. The company’s blaming adverse market conditions including poor physical disc sales and Internet piracy.