With the company confirming it has received new interest from private equity houses, analysts are finding it increasingly hard to predict what will happen to EMI.
As the share price continued to yo-yo, rising more than 8 percent to 249.5 pence on May 4th after the U.K. label notified the London Stock Exchange (LSE) it had been approached by "a number" of investors, some market watchers suggested the major record company would be talking to private fund managers including Permira, Fortress, One Equity and Cerberus.
Others were more dismissive of the news. The Financial Times said many of EMI’s largest investors believe there will be a tie-up with Warner Music if European regulators clear the Sony-BMG merger and Universal Music’s acquisition of BMG Music Publishing.
"Any chance EMI get, they put out a statement saying they have received approaches," one unnamed banker told The Daily Telegraph. Other business writers pointed out that past talks with private equity funds such as Permira, which is believed to have offered 310p a share, have broken down.
EMI chairman and chief exec Eric Nicoli is seeing his company do well from the continued speculation.
EMI issued two profit warnings within a month at the beginning of the year and the stock price fell to 210 pence. Since then, some trading figures that were only remarkable for being no worse than expected and increased speculation about private equity interest has driven the shares up 18 percent to about 250 pence.
Should there be a new offer, it’s unlikely that any bid would come near the Permira figure, despite the May 4th share hike. Even the 260 pence Warner put on the table last year looks a tad high.
There is still the suspicion that Nicoli is intent on turning the company around under its own steam, relying on cost-cutting initiatives and cheaper debt funded by securitising the group’s publishing revenues.
The company statement to the LSE suggested it was less excited about the new approaches than some of the press.
"Further to recent speculation," the stock exchange statement said, "EMI Group plc confirms that it has received a number of preliminary indications of interest to acquire the company. There can be no certainty that any offer will ultimately be made. Further announcements will be made if and when required."
One Equity, the U.S. private equity group affiliated to JP Morgan and led by former EMI executive Jim Fifield, reportedly approached EMI about a takeover that could value the British music group at more than £6 billion, but that deal looks problematic.
One Equity is backed by members of the Qatari royal family, which also has money with rival suitor Permira.
Any bid from private equity is likely to be leveraged against EMI’s publishing income and the company is already negotiating how it can use that income to reduce the cost of its debt.