EMI's Warner Offer May End With Blood On The Tracks

He said, I'm gonna buy this place and burn it down

I'm gonna put it six feet underground

So sings Chris Martin, front man of Coldplay, EMI's top-selling act. But is Eric Nicoli, the music group's chairman, having his very own Rush of Blood to the Head with his $4.23bn offer for Warner Music?

Nicoli could be forgiven for having torn out what's left of his hair several times over during the past seven years, given the number of times he has tried and failed to tie the knot with Warner. He's got close at least twice so he's now hoping it's third time lucky.Warner Music, led by Edgar Bronfman, is right to have rejected EMI's $28.50 "preliminary non-binding proposal". But there probably won't be much more on the table when Nicoli returns, which he is sure to do. The man who loves the blues might add another $1.50 a share or so but that will be it.

Warner Music's private equity backers are in no rush to sell, having already got back their original investment through dividend payments and refinancing. But there isn't another willing buyer like EMI around who can justify $30 a share, thanks to the cost savings and other benefits it can extract from crunching the two companies together.

The key consideration for Warner shareholders is what chance they have of ever seeing $30 a share again. In the absence of a bid, that level seems unlikely for some time. The alternative would be for Warner to turn the tables and buy EMI, but that would be expensive and complicated and, for private equity, the offer of a profitable cash exit now should prove just too tempting.

So the industrial logic to the tie-up is compelling and, having seen rivals BMG and Sony already forge a joint venture, and Universal get bigger and bigger, the timing could not be better. Nicoli will need to throw US and European competition regulators some meat, which is why selling Warner's music publishing arm makes sense.

Which leaves the age-old problem of egos, something music companies have no shortage of. Who gets to control the sound system could yet scupper the deal. But Warner's private equity backers are unlikely to let so-called "social" problems get in the way of completing if there's cash on the table.

The hard bit for Nicoli will be to mesh the two cultures together. If he can't he can always hum Coldplay.

I'm gonna buy this place, that's what I said

Blame it upon a rush of blood to the head

Source: telegraph.co.uk