Chrysalis Knocks Back EMI Bid

Chrysalis rejected a 155-pence per share offer from an unnamed bidder, although The Times, The Daily Telegraph and The Independent all said it came from EMI.

Whether the £104 million takeover offer came from the U.K.’s only major recorded music company, the independent label headed by Chris Wright says the offer undervalues the company.

Chrysalis blamed "global economic and credit market conditions" for warding off potential suitors over the past four months and limiting their ability to make firm offers.

Chrysalis released a statement April 15 saying the board doesn’t believe it’s the right financial climate to get the right price and the company has "ended discussions with potential buyers."

All the major music companies have reportedly shown an interest in Chrysalis, but they’ve also dropped away and left EMI as the most likely bidder.

However, the original stories of EMI’s interest put the bid at £150 million, prompting speculation that it’s now cut that valuation by about a third.

Chrysalis, which sold its Global Radio business for £170 million a year ago, had its share price cut 18 percent to 112 – 33 pence below the offer price – as news of the breakdown of the talks filtered out.

Earlier in the week the newspapers suggested that EMI could be considered a sub-prime borrower, as the Financial Times reported that Citigroup is struggling to reduce its exposure to the company.

The paper says it removed the US$5 billion it lent Terra Firma to buy EMI from a US$12 billion loan portfolio that it’s trying to sell because the record company’s finances were turning investors off the whole package.

It said Citigroup was forced to remove the EMI loans, which made up almost half of the bundle, because it was unable to provide adequate financial information to potential buyers.

In a financial climate where banks and investment houses are struggling to sell or even syndicate leveraged loans, the radical restructuring that Guy Hands and Terra Firma are carrying out at EMI has led potential investors to wait to see the results of the overhaul.

Recent figures show the recorded music market shrunk 10 percent in 2007 and the sector still hasn’t been able to curb Internet piracy.

A recent study by the industry group British Music Rights found that 95 percent of the 1,158 people surveyed had engaged in some form of copying, including taking the music contents off a friend’s hard drive (58 percent) and the more old-fashioned method of recording from the radio.