Hedge Funds Want EMI On The Cheap

U.S. private equity houses Fortress and Cerberus are teaming up to try to buy EMI on the cheap, according to a report in the U.K.’s Sunday Telegraph.

The firms believe they can get away with offering less than the 260 pence per share Warner Music bid because their approach doesn’t carry the baggage of regulatory risks, the paper reported.

But it may not be that simple. Although the Sony-BMG deal is still under scrutiny from the European Commission and music business mergers are being viewed very carefully by all the major players, Warner has reportedly told EMI that its 260p per-share offer is still on the table.

The one stumbling block to all these deals is that they depend on being leveraged against EMI’s publishing catalog, an asset that company chief Eric Nicoli is already looking to mortgage to reduce the U.K. major’s debt.

Analysts at Merrill Lynch estimate that back catalog to be worth about £700 million.

However, Citigroup – EMI’s investment banking adviser – is asking bidders to make fully financed offers by May 23rd.

Fortress and Cerberus, which both have a reputation as vulture funds keen on distressed British companies (they bought BoxClever together), are the latest in a long list of private equity houses reportedly interested in EMI.

One Equity, JPMorgan’s venture capital arm, is still looking into buying EMI, according to the Sunday Telegraph. But Permira, which has previously held talks with EMI, looks to have backed off.

Some U.K. business pages reported May 14th that it was going for a drink instead – albeit a soft one – in Britvic, one of the world’s leading fruit juice manufacturers.

The European Commission has until July 2nd to either approve or break up the Sony-BMG merger. Some clues about which way the EC will jump may come from its May 17th judgment on whether Universal should be allowed to buy BMG Publishing.

Cerberus announced May 15th it is buying a controlling interest in German car manufacturer DaimlerChrysler for $7.4 billion.