Hours Before EMI Deadline

If Warner Music or any of the private equity companies reportedly interested in EMI want to bid against Terra Firma’s 265 pence (US$5.35) per share offer, they only have hours before the U.K. company’s deadline.

The EMI board has recommended shareholders accept the offer, which values the company at £2.4 billion (US$4.7 billion) and covers £880 million debt. But U.K. papers including Financial Times and the Guardian suggest the Guy Hands-led investment house may not have things all its own way.

The news of Terra Firma’s offer, made via the newly incorporated Maltby Ltd., has caused EMI’s shares to rally 23p to 271p – 6 pence more than the offer price – and stakeholders may now relish the prospect of a bidding war, the FT reported.

But Warner would probably need to come in quickly at something like 300 pence a share, compared to its last provisional offer of 260 pence, if the EMI board was to consider a deal that would be subject to some close regulatory scrutiny.

Private finance houses including One Equity Partners, Cerberus Capital and Fortress have been named as potential suitors for EMI. Permira equity group has already failed with a 310 pence bid, although that was before the U.K.’s only major music company issued a few profit warnings within a month.

"The share price reaction indicates that there is some hope we may see a counterbid from Warner. It’s certainly possible," Numis Securities analyst Paul Richards told the Guardian, saying Terra Firma’s offer may "force Warner’s hand."

According to the Daily Telegraph, Warner’s advisers at Goldman Sachs and Lehman Brothers were conducting due diligence at the London offices of Greenhill, EMI’s advisers, when it was announced the board would recommend the Terra Firma bid.

The paper speculated whether Warner is considering making a higher offer or maybe even considering buying EMI’s recorded music assets from Terra Firma at a later date.

At the end of last week, EMI opened its books and requested interested parties to come back with an offer by May 23rd.

If any would-be buyers needed reminding of what they’re taking on, minutes before the Terra Firma deal was announced, EMI issued full-year result to March 31st saying the group recorded a pre-tax loss of £263.6 million. Last year the company made £118.1 million.