- The Washington Times - Monday, May 21, 2007

LONDON (AP) — EMI Group PLC, home to the Beatles and Coldplay, agreed to a $4.7 billion takeover by a private equity group yesterday, but the deal raised speculation of an all-out bidding war for the struggling music company.

EMI, which has long flirted with Warner Music Group Corp., said Terra Firma Capital Partners’ offer was the best among a number of proposals it received.

However, analysts said that the $5.23-per-share offer from Terra Firma could flush out a higher offer from Warner Music, already reportedly looking at EMI’s books, alongside other potential bidders.

EMI’s shares soared on news of the offer, which was made just before the closing bell on the London Stock Exchange, finishing 8.5 percent higher at $5.30.

“The global music industry is undergoing significant change and, whilst EMI is confident in its ability to deliver its recently announced restructuring plans, significant uncertainty exists as to the timing and extent of future market developments,” said EMI Chairman John Gildersleeve.

“Terra Firma’s offer is the most attractive proposal received and delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company,” he added.

Unlike a merger with Warner Music, a private equity deal would be untroubled by regulatory hurdles and could be completed much more quickly.

Music companies have been looking to consolidate as the market for compact discs declines rapidly. The International Federation of the Phonographic Industry estimates that overall music sales fell around 3 percent in 2006 while the doubling of digital music sales failed to compensate for falling CD sales and digital piracy.

The company announced a raft of cost-cutting measures when it issued its first of two profit warnings early this year and announced the departure of two top executives.

It confirmed those warnings yesterday, posting a 15 percent drop in sales to $3.5 billion.

EMI has blamed the overall industry decline, citing disappointing North American CD sales.

But analysts say the industry’s woes do not entirely explain EMI’s poor performance, pointing out that Warner and Universal have fared better.

Analysts instead highlight EMI’s persistent weakness in the United States, lack of promising new tunes and internal control problems.

Warner Music, which has Madonna and the Red Hot Chili Peppers on its books, and EMI have been in on-and-off merger discussions over the past seven years. They abandoned talks last summer after a European Court ruling scuttled another big merger between the music units of Sony Corp. and Bertelsmann AG — and their inability to agree on a price.

Warner last made a formal approach earlier this year, which was rejected by EMI in March.

Terra Firma is helmed by Guy Hands, who built Nomura Holdings Inc.’s buyout business in the 1990s before leaving to run his own firm with Nomura’s backing in 2002.

Mr. Hands last month lost to New York private equity firm Kohlberg Roberts & Co. in the takeover battle for pharmacy chain Alliance Boots PLC.

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