Monday, May 21, 2007

Terra Firma Agrees to Buy EMI for 2.4 Billion Pounds (Bloomberg)

By Aisha Phoenix

May 21 (Bloomberg) -- Guy Hands's Terra Firma Capital Partners Ltd. agreed to buy EMI Group Plc for 2.4 billion pounds ($4.7 billion), raising the prospect of a takeover battle for the record label of the Beatles and Coldplay.

Terra Firma offered 265 pence per share in cash, the London-based buyout firm said in a statement. Shares of London- based EMI rose to 271 pence, indicating some investors expect another bid for the world's third-largest music company.

``The company is totally in play,'' Claire Enders, founder of independent media research firm Enders Analysis, said today in an interview. ``They are hoping a bidding war erupts.''

Warner Music Group Corp., whose 2.1 billion-pound offer was rejected in March, may raise its bid for EMI and buyout firms including One Equity Partners LLC are also interested, the Sunday Times said yesterday. EMI, which ended talks with Permira Advisers LLP in December, today reported a 288.5 million-pound loss and a 13 percent revenue drop as music downloads failed to make up for piracy and falling CD sales.

Music companies saw U.S. album sales fall 17 percent in the first quarter. Retailers sold 117.1 million albums in the three months ended April 1, researcher Nielsen SoundScan said last month.

``EMI is suffering from what all the majors have suffered from, the decline in physical sales of CDs,'' said Theresa Wise, a media analyst at Accenture in London. ``They have invested in digital music sales, but those aren't climbing as fast as traditional sales are falling,'' she said.

Will Tanous, a spokesman for Warner Music, said the company had no comment on the EMI bid.

Terra Firma

Terra Firma plans to ``build on EMI's current position as one of the world's leading music companies and accelerate the development of its digital and online strategy,'' Hands said in a statement.

Hands, 47, built up Nomura Holdings Inc.'s buyout business in the 1990s before quitting to run his own firm with Nomura's backing in 2002. His other investments have included the German rest-stop chain Autobahn Tank & Rast GmbH.

Last month, he lost out to New York-based Kohlberg Kravis Roberts & Co. in the 11.1 billion-pound takeover battle for Alliance Boots Plc, owner of the U.K.'s biggest drugstore chain.

Hands declined to comment when reached on his mobile phone today. His spokesman, Andrew Dowler, also declined to comment.

Music Publishing

In addition to EMI's recorded music business, Terra Firma would get the more profitable music publishing unit. The division's operating margin increased to 26.3 percent in the year ended in March from 25.1 percent a year earlier.

EMI said April 18 it planned to use revenue in the music- publishing unit as collateral for bonds by the end of fiscal 2008. Asset-backed securities typically carry lower interest rates than bonds that only have a company's promise to repay the debt.

Terra Firma's Hands has used asset-backed debt in the U.K. since 1995 as a strategy to help pay for acquisitions.

The bid is ``good news for EMI,'' said Alex DeGroote, an analyst at Panmure Gordon in London. ``It's an all-cash offer, so it's a way out for shareholders,'' he said.

Before today, shares of EMI had declined 6.4 percent this year to 248 pence.

Multiple Offers

``The EMI board received a number of proposals from several different parties,'' EMI Chairman John Gildersleeve said in the statement. ``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.''

EMI said May 4 that it had received several takeover approaches. Greenhill, Citigroup Inc. and Deutsche Bank AG are acting as joint financial advisers to EMI. Dresdner Kleinwort is acting as financial adviser and corporate broker to Terra Firma.

New York-based Warner Music offered 260 pence a share in March, a bid EMI said at the time was ``inadequate.'' The two companies abandoned $4.6 billion offers for each other in July on concern a combination would be blocked by European Union regulators. Warner had bid 320 pence a share for EMI in June.

The combined company would have a quarter of the global market, moving ahead of Sony BMG to rank second worldwide behind Vivendi SA's Universal Music Group.

Falling Sales

The company had a net loss for the year ended March 31 of 288.5 million pounds, compared with a profit of 86.1 million pounds a year earlier, EMI said today in a statement. Sales fell to 1.81 billion pounds from 2.08 billion pounds.

EMI cut its revenue and profit forecasts twice this year. The company, which released albums by Robbie Williams and Norah Jones in the second half, reported an ``unprecedented level of market decline'' and ``an exceptionally high level of product returns'' when it cut its forecasts in February.

Slumping revenue previously has driven EMI Chief Executive Officer Eric Nicoli to seek a combination with Warner Music as a way to reduce costs.

Warner and EMI dropped efforts to merge in 2000 after regulators opposed the plan. EMI's attempt to buy Bertelsmann AG's BMG unit in 2001 was also stymied by regulators. EMI again failed to combine with Warner in 2003, when a group led by Bronfman won the bidding for Time Warner Inc.'s music unit.

Last July, Warner and EMI withdrew bids for each other after the European Court of First Instance in Luxembourg threw out EU regulators' approval of the merger that created Sony BMG Music Entertainment in 2004. The Sony BMG combination is still subject to EU approval.

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