With indications pointing toward the European Union’s likely approval of both the SonyBMG merger and Universal Music Group’s purchase of BMG Music Publishing, London-based EMI Group has moved into full sale mode.
EMI Chairman John Gildersleeve has opened up a data room at investment bank Greenhill & Co.’s offices and has asked potential bidders to submit firm offers by May 23 – the day EMI is set to report financial results for the fiscal year ending March 31.
Deutsche Bank and Citigroup are advising EMI boss Eric Nicoli on the deal, but sources said Gildersleeve and Greenhill are driving the process.
According to these sources, Gildersleeve is looking to snag a bid price of 300 pence ($5.92) per share or more, and is hoping that the private equity interest he’s been able to drum up in recent weeks will pressure Warner Music Group to raise its current 260 pence bid to that level rather than risk losing to a financial buyer.
That’s going to be a tough sell, however.
While the interest of private equity firms One Equity Partners, Fortress, Cerberus and Terra Firma is indeed real, without the cost-savings available to Warner Music, none of them can come close to the 260 pence offer the rival music label already has on the table.
It’s understood that One Equity and Cerberus want to acquire and keep EMI intact. Fortress, however, aims to buy EMI and then sell off its music publishing assets to strategic buyers piecemeal before flipping the recorded music business to Warner Music once the regulatory cloud lifts.
“Those firms would have to have unreasonably optimistic assumptions about the music business’ prospects to bid at or above market for EMI,” said one source.
EMI shares closed yesterday at 245.75 pence.
Despite the competing bidders, Warner Music still feels it’s in the driver’s seat. “EMI’s value keeps going lower and lower, and they keep turning down offers,” said another source.
Indeed, it would be difficult for EMI to justify to shareholders the acceptance of a bid below 260 pence after having already rejected a bid at that price just two months ago, a 320 pence offer last summer and even higher offers than that in the past.
EMI can make an argument that selling to a financial buyer, even at a lower price than what Warner Music offered, is preferable since it would encounter less regulatory risk and is more likely to close.
That’s exactly the tack financial buyers are expected to take with EMI’s board while also playing up the fact that the music business will continue to deteriorate during the lengthy approval process needed in a deal with Warner Music.
More importantly from Warner Music’s perspective is the fact that Nicoli is loath to sell to Edgar Bronfman Jr. Because of that, sources said Nicoli is likely to aggressively play up the regulatory uncertainty to the board and champion the best of the competing offers.