The Telegraph reported today that Terra Firma has bought itself a bit of time with Citigroup. EMI reportedly now has an extra three months to reach certain financial targets. (To what degree these goals are tied to Citigroup financing is a bit unclear. A December 2007 article at the Telegraph said the recorded music earnings goal was not tied to loan covenants.) The recorded music division has a goal of £180 million in EBITDA by September. About £100 million is expected to be saved from a restructuring that reduced the staff by over 2,000 employees.

The report said internal sources claim the original June goal of £150 million EBITDA will be missed. The recorded music division is on pace for £133 million, which means label bosses will not receive bonuses. Instead, the entire workforce is being offered a back-end bonus. When Terra Firma realizes the value of its investment (through sale of refinancing) the entire recorded music workforce will receive 15% of the division's equity. Publishing employees get a similar deal.

The article ends with a tidbit about an EMI strategy to merge its recorded music division with that of Warner Music Group.

Terra Firma is also understood to be sitting on a secret long-term plan, code-named Project Poker, to tie-up with listed US major Warner Music Group, merging their struggling recorded music divisions. No approach has been made to Warner, but the strategy would be to sell on some music publishing assets in order to avoid regulatory constraints.

The two companies have danced around one another for a number of years and have not been able to either merge or acquire the other. The two planned on merging in 2000, when Warner Music was still a part of Time Warner, but pulled out later in the year due to regulatory concerns. More recently the two companies made offers and counteroffers before EMI was eventually acquired by private equity group Terra Firma in May of 2007.

Posted by Glenn at 10:38 PM | Link
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• Reuters reports that Warner Music Group is "likely" to offer an increased bid to top the $4.73 billion bid for rival EMI submitted by private equity firm Terra Firma. Could be worth it if Coldplay plans to release an album any time soon. (Reuters)

• At the urging of a House Judiciary Subcommittee, SoundExchange has offered small webcasters break in royalties. (Billboard.biz)

• In a lawsuit similar to Cheap Trick's complaint against Sony BMG, FBT Productions and Em2M have sued Aftermath Records and Interscope Records over digital royalties. The plaintiffs allege they have been underpaid and should have received half of net receipts from ringtones and downloads. (Billboard.biz)

• Defend Distribution has teamed up with former Caroline Distribution GM Rick Williams, who will act as a consultant, to expand its label roster and increase its label services. Good thing Defend now goes through Ryko. (CMJ.com)

• A profile of Sonos founder John MacFarlane. He's a big believer in the subscription model. "As broadband connectivity becomes ubiquitous, MacFarlane sees an inexorable shift to the music dial-tone model -- which is more conducive to a raft of innovations, such as social networking and recommendation engines, that are currently unfolding." (Business 2.0)

• An IFPI investigation has resulted in a shut down of a voucher system for Russian download site allofmp3.com run by a London-based agent. (PC Pro UK)

• Here's a video of the unboxing of a Halo 3 edition of a Zune portable media player. The player's design isn't much, but it shows the kinds of cross-promotions that Microsoft can utilize to help its Zune player get marketshare. (Zune Insider)

Posted by Glenn at 12:04 PM | Link
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The Times Online reported today Warner Music Group is prepared to up its bid by £100 million ($197 million).

"The size of the payment reflects the confidence of Edgar Bronfman, Warner’s chairman, that a £4.6 billion merger with EMI will now be approved by competition regulators. He is prepared to offer investors a financial inducement to weaken EMI’s argument that they should accept a lower offer from private equity."

Just yesterday, The Times Online reported that WMG would be "unlikely" to increase its previous bid of 260p per share. That article claimed WMG had emerged as the most likely winner of the four companies interested in EMI (WMG and three private equity groups).

In recent weeks, there have been reports that the EU would probably approve a WMG acquistion of EMI. What I'm wondering is what this would do to EMI's foray into sales of unprotected downloads. WMG and the other majors do not see eye to eye (or say they say publicly) with EMI on the matter of DRM.

Posted by Glenn at 9:59 PM | Link
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Fox News' Roger Friedman has some info about a 2004 failed attempt to merger Warner Music Group and EMI. (read article here, scroll down.) The details have surfaced as exhibits in a lawsuit brought against WMG's Edgar Bronfman by Richard Snyder. Documents offer insight on a proposal for WMG's recorded music group and part of its publishing group. That letter, sent by EMI chairman Eric Nicoli on Feb 9, 2004, was sent to WMG and Scott Sperling of Thomas H. Lee Partners, the firm that financed Bronfman's acquisition of WMG from Time Warner.

Nicoli proposed a merger with WMG for $1.6 billion in cash and a structure with Bronfman as CEO of the "enlarged EMI group," Alain Levy as CEO of the music group and Martin Bandier as the CEO of the publishing group.

The thrust of the article is a belief that this merger should have gone through and that Bronfman missed a golden opportunity to save the industry. His opinion should not be taken too seriously; Friedman is not a business writer or analyst. He is a connected, gossipy entertainment journalist. ("There might be a record business now," he confidently wrote at the beginning of the piece.) "It's that simple," wrote Friedman. "All Nicoli asks is that his EMI executives remain in place through the new company." That simple? Maybe Friedman should look at the Sony BMG culture wars as a case study of muddy executive leadership when entertainment companies on opposite sides of the Atlantic merge.

Posted by Glenn at 11:22 AM | Link
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• The Sunday Times reported that Warner Music Group may pursue a merger with EMI by making a direct appeal to its shareholders. The report claimed WMG execs were "astonished" that EMI had moved to drop DRM from downloads while it was a bid target. (Forbes.com)

• Merril Lynch analyst Jessica Reif Cohen warned of more declines this year (no kidding). "With digital growth naturally decelerating over time and the decline in physical sales accelerating, an imminent return to growth for the industry no longer appears likely." She kept a "neutral" on Warner Music Group. If you recall, Reif Cohen caused Merril Lynch to drop out of WMG's IPO and lose millions in underwriting fees after she told the firm it was overvaluing the shares. (Hollywood Reporter)

• It's high time for indie culture to go mainstream: Top indie labels will create a series of compilations, similar to the Now That's What I Call Music series, and partner with MTV2. Distribution will be aimed at mass merchants like Wal-Mart. Vice will release the first volume. Sub Pop and Matador are considering future editions. Said the always quotable Adam Shore of Vice, "We don't really expect indie-rock stores to support this record. It's for the casual fan." (Entertainment Weekly, via Hypebot)

• Sony BMG announced it will release two music titles on Blu-ray this summer: Bruce Springsteen and the E-Sreet Band: Live in Dublin, and Chris Botti Live with Orchestra and Guests. (High-Def Digest)

• Warner Music Group will offer videos through Joost. (Press release)

• Some feedback on download sales at MySpace. In a nutshell, they're quite low thus far. "People don't go to MySpace to buy," one source said. "I just don't think people are going to MySpace to buy stuff," said another. Obviously Snocap and Hooka have to get people to register and become familiar with the process. (Digital Music News)

• A profile of Dennis Mudd, CEO and co-founder of digital music company Slacker. (USA Today)

Posted by Glenn at 8:35 AM | Link
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• Short of any reaction to the following news, this could be the last Tower Records bankruptcy post: A judge approved bonuses for two top Tower Records executives, CFO Rebecca L. Roedel and corporate secretary Nicolas Thakar, who remain at the company. The amounts of the bonuses were not disclosed. The AP reports bankruptcy records show Roedel collected almost $426,000 in the 12 months prior to Tower's filing for bankruptcy. (Read AP article)

• Garage rock evangelist Little Steve has strated his own record label. Wicked Cool Records has a direct-to-retail sales strategy (the Forbes.com article mentions a deal with Best Buy and six initial releases to the chain) and a "unique" 50/50 profit-sharing arrangement with its artists. The label's first release will be Davie Allen's Fuzz For The Holidays on December 14th. (Read article at Forbes.com)

• Beyonce has joined a select group of female artists. In 2006, she became the only the second woman to replace herself at #1 as a songwriter (first "Grillz," then "Check On It"). She is tied with Diane Warren for third on the list of female songwriters with #1 hits ("Irreplaceable" is her ninth). There is one title that Beyonce has all to herself: At 13 letters, "Irreplaceable" is the #1 song with the longest, one-word title. (Read article at BIllboard's Chart Beat Chat)

• The Sacramento Bee has a fantastic three-day series titled "To Live and Rap in South Sac." Articles, photoessays and podcasts document South Sacramento's rap scene and some of its biggest artists (Brotha Lynch Hung, Zigg Zagg, BeGee, Young Meek, Pain, First Degree the M.E. and Big No Love).

Posted by Glenn at 3:33 PM | Link
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Warner Music Group wants EMI. Private equity firms want EMI. EMI wants Warner Music Group. Private equity firms already have ownership in WMG. Offers have been made and rejected. Everybody is looking for signs that European regulators will block or allow an acquisition. Any transaction will have a huge impact on the composition of the music industry, artists and employees.

Since yesterday there have been some new developments:

• Today the New York Post reported Warner Music Group has resumed merger talks with EMI. Though WMG's Edgar Bronfman said just days ago that talks were off until European Union regulators shows their hand, those within WMG are predicting a smooth regulatory road. "From our perspective, we're not sure the regulatory issues are a show-stopper," a source told the Post. The article points out that even if private equity takes EMI, WMG could still go after EMI's recorded music business. (Read article at New York Post).

• The head of investment at Insight Investment, which owns six percent of EMI's shares, told The Times the an acceptable price is 400 pence per share, or about £3.2 billion ($6.26 million). WMG's rejected bid earlier this year was 320 pence per share. "This is an exciting business, because of the potential for consolidation if the regulators allow it to happen." (Read article at Times Online)

• Regulations will soon shed some light on whether or not they would allow an EMI/Warner Music Group merger. Yesterday, EU officials launched an antitrust probe and announced a decision on a Universal Music Group purchase of BMG Publishing would be handed down by April 27, 2007. An approval would combine the numbers three and four music publishing companies. Impala, the coalition of independent record labels, opposes the merger and believes it would be harmful. An EU ruling, expected this summer, on the annulled Sony BMG merger would offer a better indication of regulatory hurdles EMI and WMG could face. (Read AP article)

Posted by Glenn at 1:32 PM | Link
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Today The Independent reported that EMI is considering a buyout, which revive talks of a merger between EMI and Warner Music Group. Why a buyout? It is expected that the European Union would reject any attempted merger of EMI and WMG. Andrew Dawson explained a possible workaround:

"With the European Union likely to thwart any further attempts at consolidation in the music publishing industry, traders said that management believe that the best way to take the company forward is to take it off the public markets. ... Traders said that an offer could be made before the end of the week."

Posted by Glenn at 1:24 AM | Link
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• The Future of Music Coalition filed comments in the FCC's broadcast ownership proceeding. Its stance: "Large station groups do not offer more format variety." For the long version, read the executive summary and/or the 19-page PDF.

• Victory Records will make its catalog available at eMusic starting October 31st. (Read article at Billboard.biz)

• Analyst Simon Wallis finds some positives in the EMI accounting fraud. The drop in share price exceeded the per-share impact of the restatement, which presents a good buying opportunity. Also, he believes it could have opened a door for Warner Music Group to bid on EMI. (Read article at The Independent)

• Should YouTube worry about lawsuits from media companies? Not really, wrote Columbia law professor Tim Wu. How so? In the '90s, he wrote at Slate, the Bell companies lobbied against Hollywood's requested reforms. The result was the Online Copyright Liability Limitation Act, part of the Digital Millennium Copyright Act of 1998. Section 512 (c), he claims, is the Magna Carta of Web 2.0 because it provides web companies a safe harbor. Copyright content hosted unknowingly by those companies falls under "tolerated use," a cousin of "fair use." Further, it gives media companies the dual benefits of exposure and control (in the form of "notice and take down" requests). (Read article at Slate)

• FoC Alec Hanley Bemis interviewed Pedro Winter, manager of Daft Punk and owner of Ed Banger Records. "We sell between 2,000 and 4,000 vinyls — a small amount, but still a good score for vinyls when you can’t even find record stores. They are all closing!" (Read article at LA Weekly)

Posted by Glenn at 11:00 AM | Link
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• After news got out that Warner Music Group's Edgar Bronfman has been targeting EMI investors, shares of EMI rose 7%. At the same time, Bloomberg data indicates the perceived risk of holding EMI's bonds rose 3%, which shows an decrease in perception of credit quality. (Read article at Bloomberg)

• Network Live is gone and has parted with AOL, but its production team is going to start a new live music distribution deal with MSN called Control Room. (Read the details at paidContent)

• The RIAA's Cary Sherman testified to Congress that universities "resist taking action, or do as little as possible in order to brush off further responsibility" when it comes to P2P on their networks. (Read post at Digital Music News)

• A truce was called without as much as a press conference: Victory Records titles finally make an appearance at the iTunes Music Store. (Read post and comments at Punknews, via Idolator)

• Def Jam attempts to squash rumors that the label dropped rapper Method Man due to less-than-stellar sales. "Method Man is still part of the Def Jam family and he is currently on tour promoting his new CD," said a spokesperson in a statement. (Read article at SOHH)

• Rapper Beanie Sigel, on the other hand, says he is no longer signed to Def Jam or Roc-A-Fella Records. (Read article at SOHH)

• Study: HD radio still confusing listeners. (Read article at Radio and Records)

Posted by Glenn at 8:56 AM | Link
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After the EU shot down the 2004 Sony BMG merger, EMI and Warner Music Group put their merger/acquisitiion plans on ice. Things had been quiet...until The Times Online put out an article an hour ago that claims WMG's Edgar Bronfman is going after EMI shareholders in an attempt to combine the two music groups.

"This month, the boss of the New York-based music group visited London to talk to EMI investors. He is understood to have met Fidelity, a 7 per cent shareholder, and Aberdeen Asset Management, as well as holding a group session with some hedge funds that have shares in EMI. Those approached indicated privately that Mr Bronfman remained surprisingly focused on the possibility of a deal with EMI, which many investors had not expected."

Investors told The Times Online that Bronfman is optimistic about the prospects of getting EU approval on a merger.

One thing the article doesn't mention is the likely outcome -- whether it would be a merger or an outright acquisition of EMI by WMG. The popular theory has been that Bronfman would want to acquire rather than be acquired.

Extra reading: Coolfer's posts on EMI/WMG merger chatter.

Posted by Glenn at 6:39 PM | Link
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Well, it was quite a dance, but Warner Music Group and EMI have announced they are done courting each other. Impala's successful bid to force the EU to take another look at the Sony BMG merger of 2004 has had a chilling effect on the two smaller majors' aspirations to purchase the other.

From Warner Music Group's press release:

"WMG will monitor the situation carefully, but until matters become clearer, for instance as a result of the re-review of Sony BMG by the European Commission or through an appeal to the European Court of Justice, WMG does not believe that it would be prudent to pursue a combination of WMG and EMI. Accordingly, WMG does not intend to make an offer for EMI at this time."

EMI's press release prefaced by outlining the Sony BMG ruling and its two unsuccessful bids:

"Against this background, the Board of EMI has decided not to pursue a combination with Warner Music for the time being. The Board will review this position in the light of future developments.

Both companies stated that they're leaving the door open to revisit the topic of an acquisition, but for 2006 any further talks look to be completely over. In the short term, both companies can get on with their 2006 release schedules and employees can stop worrying about being caught in the downsizing net.

Posted by Glenn at 12:24 PM | Link
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The NY Post's Tim Arango today called an EMI/Warner Music Group deal "on ice" a week after a European court overturned an EU decision to approve the 2004 merger of Sony and BMG.

Although EMI chairman Eric Nicoli said last week the Sony BMG decision had no bearing on its efforts to acquire WMG, Arango was told by sources that "Nicoli and those close to him have realized that a deal anytime soon is farfetched" and that talks will not resume until the Sony BMG issue is resolved by the EU.

Yesterday a Hits piece on the merger matter and outlined the time table for a resolution. The review process would not begin until September and would take at least four months, meaning that Sony BMG would not get regulatory approval or denial until early 2007. That means EMI and WMG would postpone talks in earnest until that time.

Today Bertelsmann said it does not expect the sale of its BMG Music Publishing to be affected by by the decision against Sony BMG. Some have been worried that the court's decision was a harbinger of greater scrutiny to come, and that attempts by WMG, Universal Music Group and EMI to increase their publishing businesses would be hampered.

Posted by Glenn at 4:16 PM | Link
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Almost as if to deflate expectations ahead of time, EMI's Alain Levy told The Times' John Arlidge that the company is, in the event an acquisition of Warner Music Group doesn't materialize, is strong enough to survive on its own. Then, near the article's end, Levy looks to a future without a deal with WMG. "A deal would create value but, if it doesn’t happen, we’ll create value in a different way to become the best music company in the world."

But overall the article portrays a man far from down on a combined EMI/WMG and determined to get beyond the court's decision against the Sony BMG merger approval.

An interesting aspect: Levy says he could indeed work with Edgar Bronfman. "To see it as a big fight of two egos, that’s total nonsense." He also hinted that he would like to run a combined company. "Would I like to be here for the next five years continuing to build what I have built out of something that was in pretty bad shape? I have a total passion for my job."

Posted by Glenn at 5:19 PM | Link
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CNNMoney.com writer Paul R. La Monica makes a case against a merger of EMI and Warner Music Group. His rationale: Greater consolidation would result in a greater likelihood of higher digital prices, and the financial fundamentals just aren't there.

Coolfer's thoughts: First, I do not believe there's great risk in prices rising much higher on the typical digital album. Look at iTunes this very second. As of the time of this writing, 18 of the top 100 titles were above $9.99 and there's hardly a consumer backlash. The trend in recent years has been toward lower prices. If prices stay constant or rise slightly there will probably be additional content bundled with the album.

Second, La Monica is right about the financials. Neither company is burning up with revenue growth, and rising stock prices is due to pre-merger speculation.

Posted by Glenn at 2:32 PM | Link
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As industry observers call a union inevitable and employees for both companies wonder about their futures, EMI and Warner Music Group continue to work behind the scenes to raise bids in an effort to acquire the other. The weekend has seen a slew of articles with information related to the bidding.

Today The Times Online reported "big shareholders" have given a green light to EMI's Eric Nicoli to raise its bid for WMG. Said an institutional investor, "We have told Nicoli we will be comfortable up to about $35 a share."

The LA Times' Charles Duhigg had an article yesterday about the two companies' bidding games. Duhigg mentioned a Warner Music advisor who "contacted EMI shareholders on Wednesday to inquire whether a deal could be struck at a purchase price of 340 pence" (roughly $4.8 billion). The bid was not authorized, and an EMI financial advisor said a serious bid "begins with 4 pounds."

Also today, an article at The Telegraph mentioned that financial advisor who sought out feedback for a bid of £3.40. Though not an official bid, the amount is thought to be too low. The Telegraph quotes a banker with ties to EMI as saying "Warner will have to do a lot better" than £3.40 (previous bids were at £3.10 and £3.20).

The aim of the back and forth bidding is raising the prices is the subject of this post at The Telegraph by Fiona Maharg Bravo. What good came from WMG's counterbid? she asks. "One explanation is that it does not necessarily want to buy EMI; it wants the UK group to pay more." WMG's offer puts a price tag on its own business and the amount of cost savings it believes it can achieve. It's a way of saying "beat that and maybe we can talk," she suggests.

Suggested reading: Coolfer's posts on the EMI/WMG merger talk.

Posted by Glenn at 10:34 AM | Link
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• EMI will not pay as high as $5.6 billion for Warner Music Group, a source tells Reuters, saying EMI "clearly believes $38 is a completely unrealistic valuation for a company that was trading at $21 in March." (Reuters)

• Next week a Euroean court will decide on a challenge by Impala, an association of independent record companies, against the Sony BMG merger. Impala challenged the merger in November of 2004, saying it created a "market imbalance." (Reuters)

• Troubled music group Sanctuary sold MW Entertainment, an artist management company, back to its founder, Mathew Knowles for $5 million. (The Guardian)

• Free isn't a good enough carrot for college students when it comes to online music services such as Napster and Ruckus. Adoption rates have been low, but the RIAA's Cary Sherman is on the record as being happy with the results so far. (Wall Street Journal)

• Parlophone, an EMI label, is setting up a multi-pronged digital campaign for the release of Lily Allen's debut album. (Brand Republic)

Posted by Glenn at 11:36 AM | Link
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The Times Online just posted an article claiming Warner Music Group is "contemplating" a $4.96 billion bid for EMI, which is 340 pence per share. Many feel EMI puts its value in the 400 pence per share range, so WMG is still pretty far off the sweet spot.

At the same time, WMG is said to considering an acquisition by EMI for something in the $37.50 to $38 per share range (putting the big at about $5.6 billion).

WMG plans on financing an acquistion by taking on debt, which is favored by one investor that owns shares of both companies. EMI plans on a right issue to pay for an acquisiton of WMG.

Posted by Glenn at 8:25 PM | Link
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Hugh Hendry of Electica Asset Management, which owns roughly 2% of EMI and is also an investor in Warner Music Group, has publicly supported a WMG takeover of EMI.

In a letter to The Financial Times, Hendry backed WGM's Edgar Bronfman as chairman and chief executive or a merged company. Bronfman's "substantial financial interest" in WMG and a strategy of acquiring through debt rather than equity would be preferable, he wrote.

"As Warner Music shareholders, we would insist it finance the transaction with the maximum amount of debt and without equity issuance. We believe the increase in leverage would make sense for Warner shareholders because of the substantial savings expected by combining both companies.

In addition, we feel the prospects for both recorded music and music publishing are at the early stages of an upward trend that would justify initially increased leverage."

Hendry followed by saying both companies should resisist pressures from regulators to sell off their music publishing units.

It has been estimated that EMI would finance an acquisition of WMG in part by raising $1.27 billion in a rights issue, a secondary market offering that grants to existing shareholders the right to buy the new shares in proportion to their current stake. It was reported a few days ago that WMG has secured financing good for a $4.8 billion purchase underwritten by investment banks Lehman Brothers and Goldman Sachs.

Posted by Glenn at 1:11 PM | Link
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• In the event it purchases EMI, Warner Music Group would be willing to offer a job to EMI chairman Eric Nicolo -- but not Alain Levy. (The Telegraph)

• The NY Post handicaps the songs of the summer. At 2-to-1, Nelly Furtado's "Promiscuous" is the favorite. (NY Post, via Stereogum)

• A profile of Angelica's Record Distributors, one of the bigger wholesalers of Spanish-language music in the country. (Tri-State Online)

Posted by Glenn at 7:04 AM | Link
|Distribution||EMI WMG Merger Talk|

• EMI is reportedly prepared to no longer insist that Warner Music Group sell its music publishing ahead of any EMI acquisition of WMG, which says either music publishing company should be sold only if required by regulators. (This Is Money)

• Yahoo China has run into the ire of the major music companies. The company will be sued by the majors within a few weeks, says the chairman of the International Federation for the Phonographic Industry. The industry's complain is that Yahoo provides links to illegally copied music. Yahoo is China's second-largest search engine. Baidu, the market leader, was sued last year. (Bloomberg.com)

• No details have been given oh exactly how this came to being, but eMusic has discovered 19 Sun Records tracks that have never been released. The found songs are by artists such as Charlie Rich, James Cotton, Ike Turner and Bill Justis. The songs will be added to the deep Sun catalog that is already available at eMusic. (Press release)

• Handleman, one of the country's leading wholesale music and movie distributors, partly blames a lack of hit albums for its current financial woes. It expects to go through a round of cost-cutting measures that will include closing a distribution center, lowering customer returns and reducing overhead. Employee pensions and health benefits may also be on the cutting board. (The Freep, via Kings of A&R)

• The Chicago Sun-Times' Bobby Reed on black country artists. Mentioned is a former Miss America and aspiring country star, Ericka Dunlap. (Chicago Sun-Times)

Posted by Glenn at 9:26 AM | Link
|Distribution||EMI WMG Merger Talk||Piracy||eMusic|

Last week's back-and-forth bidding was just a warm up for an eventual union of EMI and Warner Music Group. Today's news from The Guardian is that deal is expected in the next few weeks. Now the main question is who will buy and will be be bought. A takeover would bring the number of major music groups to three, the other two being Universal Music Group and Sony BMG.

One of EMI's worries was that WMG could even raise the funds necessary for a takeover bid. An article today shows that WMG has taken steps that should alleviate their doubts. The Business tells of a "highly confident" letter from WMG to Goldman Sachs that gives evidence that Goldman Sachs and Lehman Brothers will underwrite the debt should WMG submit another offer for EMI.

Some analysts are starting to worry that this is becoming a bidding war that will raise the price of the acquired company to such a level that would erode some of the cost efficiencies that are the very basis for an acquisition. The Guardian quotes one observer as saying a WMG takeover of EMI would make sense at around 400 pence per share -- a 25% increase over WMG's last bid of 320 pence per share.

The Guardian wrote about the need for a takeover, and it thinks EMI is the one to do the taking over.

"The problem is that everyone can also see the difficulty in a merger of equals. Cost savings are best achieved via a single-minded and unsentimental approach, which means a takeover. When boardrooms are carved up to satisfy management egos, it inevitably ends in disaster. Sony and BMG have demonstrated as much in the music business. Thus we have arrived at the slightly absurd situation in which EMI has bid for Warner and Warner has counter-bid for EMI."

Posted by Glenn at 11:10 AM | Link
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Today The Times Online reported that Warner Music Group asked for an inducement fee (sometimes called a break fee, or a penalty if the other party does not fulfil its obligations, or if a better offer is received) from EMI during its recent negotiations, and that EMI's board wasn't properly satisfied that WMG had raised enough financing to purchase EMI. But the article points out that WMG's open letter was only a preconditional offer.

"That meant that the US group was not required to have committed financing in place until regulators agreed the deal, leaving the EMI board uncertain as to whether Warner had the bank loans in place to pull off the deal."

WMG, though, is said to have provided side letters from Goldman Sachs and Lehman Brothers that indicated it had proper financing for its bid.

Posted by Glenn at 9:15 AM | Link
|EMI WMG Merger Talk|

Warner Music Group released a statement about its dance with EMI. While acknowledging the benefits of a combined company, WMG asserted its belief that it should be in the driver's seat.

"The WMG board agrees with EMI that there are potential merits in combining the businesses of WMG and EMI, but believes that a WMG acquisition of EMI will provide shareholders of both companies with a superior opportunity to realize significant value in their shareholdings."

WMG pointed to several pre-conditions regarding EMI's offer that it found unsavory, including the sale of its Warner/Chappel Music publishing. The better offer, it reasons, is its offer to EMI that is not precluded upon the sale of EMI's music publishing nor an equity financing condition.

Earlier today: WMG counterbids, EMI rejects, EMI counterbids, WMG rejects, WMG counterbids again, EMI rejects.

Posted by Glenn at 2:02 PM | Link
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After weeks of silence the newswire exploded this morning with news of mutual rejections from EMI and Warner Music Group. EMI's first bid of $28.50 a share for WMG was rejected back in early May.

Long expected to offer a counterbid, WMG bid $4.6 billion, or 315 pence per share, for EMI on June 14th. The bid was rejected as "wholly unacceptable."

In turn, WMG rejected EMI's second bid of $4.6 billion, or $31 a share that was tendered on June 23rd, the second bid by the London-based music company.

Last night WMG raised its bid to 320 pence per share, which was once again rejected as "wholly unacceptable."

In its statement, EMI underscored its continued belief that $31 "would be very attractive to both sets of shareholders and would deliver value to EMI's shareholders which is far superior to Warner Music's revised alternative proposal." As for financing the deal, the company "envisages that the proposal would be funded by debt finance and a rights issue, both of which would be fully underwritten, and the disposal of certain music publishing assets."

Posted by Glenn at 9:41 AM | Link
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• EMI is said to be seeking private equity backing to bid for Bertelsmann's music publishing division, a move would that would leave EMI with the resources to bid for Warner Music Group. (Reuters)

• Another reason not to put major labels on a deathwatch: Universal Music is getting into the TV production business. The company announced its Globe Productions division will produce reality-based TV shows that will use artists on its labels' roster. (The Guardian)

• British company UBC Media announces a download service that allows digital radio listeners to instantly buy a song as it is broadcast. (Reuters)

• Digital Music Group has acquired Chancellor Records. The deal encompasses over 2,000 songs from the label that had hits by Frank Valli and Fabian. The acquisition fits with Digital Music Group's stategy of selling oldies and out-of-print songs at music download stores. (DMN Newswire)

• Rumors of layoffs at Island Def Jam. (The Velvet Rope)

• An article on Tune Town in Tewksbury, Massachusetts, and the record store's difficulties as music sales have fallen since 2000. (Lowell Sun)

Posted by Glenn at 9:20 AM | Link
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With a dearth of news about EMI's expected second bid for Warner Music Group, even a little rumor is worth posting. Hits Rumor Mill whispers that its sources report that "Edgar Bronfman, Jr. has exhausted his plans for Russian or Arabian financing to help him buy WMG."

Next up: Everybody looks to EMI for the next move. It has been widely reported that EMI plans to up its bid from the rejected first bid of $4.5 billion. That was back in mid-May, and since then things have been pretty quiet.

Additonal reading: "EMI and Warner struggle to make sweet music" at the Times Online.

Posted by Glenn at 11:10 AM | Link
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After an acquisition of Warner Music Group -- if that ever happens -- EMI would face an unpleasant tax bill, reports The Times Online. Because a post-takeover EMI would most likely need to sell the Warner/Chappel music publishing unit to meet the approval of regulators, it "could be forced to consider selling its £1.2 billion music publishing arm for tax reasons."

UK companies are better able to sell assets wtihout experiencing a big tax liability than are American companies, explains that article. In order to sell off Warner/Chappel to appease regulators, EMI would need to sell EMI publishing just to pay the tax man.

This is in the event an acquisition actually takes place, of course. EMI has not yet upped its bid after WMG rejected its initial offer. This time last month the UK press was reporting that EMI would up its bid to $4.4 billion (up from $4.23 billion).

Posted by Glenn at 12:53 PM | Link
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Today The Times Online reports that Warner Music Group is looking into the possibility of raising enough funds for a counterbid to EMI's bid for WMG. Many have theorized that WMG could muster a counterbid, but this is the first report that the first investigative steps are under way.

"Edgar Bronfman, the chief executive of Warner Music, has long harboured ambitions to buy EMI, home to Robbie Williams, and is believed to be seeking new investors to support him in what would be a £2.8 billion ($5.2 billion) bid. His manoeuvres have unsettled EMI, which is considering its next move after a $4.5 billion, $28.50-a-share bid for Warner was rejected last month."

One scenario in the Times has WMG finding new investors to buy out its current investor group, forming a unified front that would make it harder for EMI to acquire WMG. That new investment group would surely have to pay a nice premium if it were to acquire EMI, which means its mandate would be to wring as many cost savings as possible out of a merged company. Translation: Layoffs galore, label groups will be merged and artist rosters will be pruned.

Additional reading: Coolfer's posts on EMI/WMG merger talk.

Posted by Glenn at 12:51 PM | Link
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• Bertelsmann's decision to sell off its music publishing unit may get in the way of EMI's planned purchase of Warner Music Group. One scenario had EMI selling WMG's music publishing after acquisition to appease regulators. But with two music publisers on the market, the selling price of each would be lower. (Telegraph)

• A good article on France's drive to create a global license that would force compatibility onto digital music stores and hardware makers. They call it "enlightened consumerism for cutting-edge technology." Some American firms probably have a few other names for it. (Washington Post)

• Hispanic music producers say illegal downloading is not yet a problem for their music. The reasons? Latinos adopt technological trends later than others, and only half of Latin parents own computers (compared to 80% of non-Hispanic parents). (Houston Chronicle)

• RIP Desmond Dekkar, reggae pioneer. (Daily Telegraph)

Posted by Glenn at 9:05 AM | Link
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Increasingly, people are talking about EMI's possible acquisition of Warner Music Group is a done deal. Some in the industrty are already talking about "the three majors." As speculation leads to possible scenarios, Hits has an article about the fallout in a WEMI world. What could become of WMG's Edgar Bronfman and others?

"History could play a part in determining how Bronfman winds up. When he acquired PolyGram in 1998, current EMI Music chief/then-PolyGram ruler Alain Levy was offered -- and rejected -- a greatly diminished role in the combined companies, so most expect that Bronfman will similarly have a greatly diminished role in WEMI world, if he has a role at all. Speaking of which, Lyor Cohen’s history with the current EMI management team begs the question: what will become of him when WMG changes hands? It has become apparent to practically everyone in the music business that Cohen isn't equipped to run a music group, though most believe he could return to heading up a hip-hop label. "

Not all are counting the chickens before they've hatched. "EMI profits surge as it pursues Warner Music deal" reads this Reuters headline. "EMI profit, revenue rise, still interested in Warner buyout" says MarketWatch.

Posted by Glenn at 4:26 PM | Link
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EMI may pull out of its bid for Warner Music Group, according to an article at Financial Mail, if WMG holds out for much more. Said one source, "This opportunity will be shut down soon, within weeks not months, if common sense does not prevail. An offer of $28.50 a share is a stupendous price for Warner's investors."

The Independent's article on the subject looks at the fears of layoffs that could happen if the two companies merge. (Well, yes, that's where a good chunk of those hundreds of millions in cost savings would come from.) One estimate puts the layoffs at one fifth of a combined 10,600 workforce.

Posted by Glenn at 10:35 AM | Link
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This is getting to be a weekend routine: An article from a UK publication about the possible purchase of Warner Music Group by EMI. This one, "Analysts cutting over EMI hopes for Warner," is at The Business Online and takes a look at how some analysts are down on the prospects of such an event.

A Deutsche Bank analyst wonders if WMG shouldn't be the one doing the acquiring. Lehman Brothers emphasized its underweight recommendation, voiced doubts that they will agree to a deal and further doubts either board would be willing to step down.

Click here for all Coolfer posts on the EMI/WMG merger chatter.

Posted by Glenn at 1:56 PM | Link
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Today The Observer reported that EMI is expected to raise its offer for Warner Music Group to $30 a share.

"Wall Street bankers say Warner could hold out for a higher bid, with some sources saying EMI may have to stump up as much as $33 a share. That could be unacceptable to some of EMI's London-based shareholders."

The bid is expected to come this week. A bid of $28.50 per share was rejected by WMG last week.

Posted by Glenn at 3:08 PM | Link
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Here's the latest out of London: EMI is "preparing to tap investors to the tune of several hundreds of millions of pounds if it succeeds in its courtship of Warner Music," according to a newspaper report. The company is said to need to raise equity to fund the cash part of a bid for WMG. Not even a sale of Warner/Chappel, WMG's music publishing arm, would cover it.

Further reading: Coolfer's posts on the EMI/WMG merger.

Posted by Glenn at 10:34 AM | Link
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The British media is reporting today that EMI will up its bid for Warner Music Group to $4.4 billion. (The first bid was $4.23 billion.) The bid of $30 a share -- WMG's stock closed at $29.05 on Friday -- is presumed to have been made to satisfy private equity investors by including more cash in the offer price.

That $30 per share offer includes a big premium for WMG's investors.

"While a new offer of $30 a share would represent a slight premium to Warner's current share price, sources close to the deal note that valuing Warner on an equivalent price/ earnings ratio to EMI before the bid means Warner would have been worth $21.50 a share."

An article at the Telegraph quotes a "executive with links to Warner Music Group" as saying a counter-offer, a WMG bid for EMI, is still a possibility. "All options are open," he said.

Posted by Glenn at 11:55 AM | Link
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The British press is all over the EMI/Warner Music Group dating game. Will they merge? Will one acquire the other? If so, who's picking up the tab, and what price will the other command?

The Independent has an article about Wall Street analysts' urging of WMG to make its own bid for EMI. (Last week EMI laid out a $4.23 billion bid for Warner Music Group, which was rejected.) Asked a Deutsche Bank analyst during the earnings conference call:

"Given Warner and EMI are a similar size, given the fantastic execution we have seen over the past four quarters, and given your experience in putting Universal and Polygram together, wouldn't it make more sense for Warner to be the acquirer in any deal with EMI?"

The Telegraph explains Bronfman's motivation: To restore the family fortune he lost when the stock of Vivendi, which he got for selling Seagram, plunged and lost the family about $3 billion.

"Analysts are divided as to whether Bronfman is just waiting for a higher price or whether he wants to turn the tables on EMI by making a counter-bid of his own. Bronfman has always loved the entertainment industry and would be reluctant to bow out - even with $500m in his pocket. After the Vivendi disaster, Bronf-man will not readily hand control of his investment in Warner Music to anyone else."

The Guardian's article asks who will pay for the wedding. The two companies seemed destined for each other, writes Edward Helmore, and if EMI ups the bid to over $5 billion then Bronfman and his backers would have to accept.

"EMI's strategic game of offering too little so they can come back with a price shareholders cannot refuse, may yet win out - so long as (EMI's Eric) Nicoli and the board can find a place for Edgar Jr. If not, Warner Music Group will just have to buy EMI instead."

Continue reading "Merger? Acquisition? And Who Will Do The Acquiring?" »

Posted by Glenn at 10:24 AM | Link
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From an article at the Evening Standard, this explanation for Warner Music Group's rejection of EMI's $4.23 billion bid from Edgar Bronfman, Jr.:

"Bronfman said: 'Consolidation for consolidation's sake doesn't make a lot of sense. Our's is not a business that requires scale economics.' He claimed there was 'no particular case for or against' merger."

While I try to figure out how WMG has no scale economics, here's a Telegraph article that discusses how WMG's music publishing unit would be sold in the event EMI acquires WMG:

"EMI will sell Warner Music's music publishing arm to allay any regulatory concerns should it be successful in a third attempt to takeover the US group. The British music group hopes to raise about £1bn from the sale of Warner Chappell - which owns the rights to more than 1m songs - if it gains control of Warner Music, which late on Tuesday rejected a proposed $4.23bn (£2.3bn) cash-and-shares offer from EMI."

Posted by Glenn at 11:42 AM | Link
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From NY Times: "Warner's biggest investors — Edgar Bronfman Jr., Thomas H. Lee Partners, Providence Equity Partners and Bain Capital, among others — would prefer not just a higher offer, but one that includes more cash, rather than stock, people close to them said."

The Independent on potential cost savings: "Lorna Tilbian, a media sector analyst at Numis Securities, said you only need look to Kensington in London - where both companies have lavish headquarters - to see that there is significant overlap that could be removed."

The Telegraph wonders if WMG will ever gets such an offer again: "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."

Posted by Glenn at 10:15 AM | Link
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Warner Music Group has rejected an EMI bid of $4.23 billion and issued this press release today:

"Warner Music Group Corp. recently received a preliminary non-binding proposal from EMI Group Plc. The Warner Music Group Corp. board of directors has carefully evaluated the proposal in conjunction with the company's outside legal and financial advisors. The board has determined that the proposal is not in the best interests of our shareholders and has unanimously rejected it."

An offer of $4.23 billion works out to $28.50 per share, or about $1.20 over yesterday's closing price.

The NY Times, as Coolfer mentioned last night, is reporting that EMI's offer tops $5 billion. Reuterrs reports CNBC also reported that $5 billion offer figure.

Posted by Glenn at 8:32 AM | Link
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