Warner Still In For EMI?

U.K. newspaper reports are suggesting EMI will knock back any bid from Warner Music at less than 300 pence per share unless the U.S. company is prepared to take all the risk of the deal gaining regulatory approval in Brussels.

The London-based major’s directors are said to believe that it’s better to grab the cash by accepting a 265p per share offer from Guy Hands’ Terra Firma private equity group, which has raised the cash for the deal and some to spare for working capital, than to hang around for a year on an offer that’s only marginally higher.

Even a bid based on the same "hell or high water" basis as Universal’s deal with BMG Music Publishing, in which the purchaser takes all the responsibility for satisfying any conditions imposed by the European Commission, would still have to come in a few pence higher than the Terra Firma offer.

However attractive the synergies between Warner and EMI, it’s hard to imagine the American group being prepared to spend 12 months waiting for regulatory approval, which would most likely depend on it being forced to sell off some of the new company’s assets.

Even if Warner were to succeed with a bid that’s only slightly higher than Terra Firma’s, being forced to jettison assets in a buyer’s market could put the cost much higher than 265 pence in real terms.

Warner chief Edgar Bronfman and his team look to have a straight choice between paying £2.4 billion or walking away, although there’s always the chance that they could return and try to buy EMI’s recorded music business from Terra Firma.

British business analysts now accept that the sale of the U.K. company is reaching its endgame, particularly as rival investment groups including One Equity, Cerberus and Fortress are struggling to see how they can match the Terra Firma bid and appear to be losing interest.

Investors also seem to have sensed there’s no more profit to be had from buying EMI shares. Since the middle of April shares have gone up nearly 28 percent (from 212.25 pence), boosted by the prospect of a bidding war, but have since flattened to about 275.25 pence – the May 31 closing price.

Apart from the speculators who’ve made a killing in the last six weeks, the other big beneficiaries from a Terra firm deal will be the city advisers who’ve helped set it up.

The U.K.’s Daily Telegraph has calculated that they’ll collect £150 million between them, with Citigroup – arranging £2.5 billion worth of debt to help fund the Terra Firma offer – getting the biggest slice of the fees.

The Terra Firma offer has a June 27 deadline and so EMI chairman and chief exec Eric Nicoli and his senior management team will have to wait a little longer to know their fate.

The private equity group has said it hasn’t had any discussion with the company’s hierarchy regarding possible future roles and the offer is not conditional on their participation.