Warner Music Won't Bid for EMI

Warner Music Group has decided not to bid for EMI Group plc, according to a statement released by the company Tuesday, ending a courtship that lasted several years years. Warner shares gained 2.3% in regular trading Tuesday and another 1.8% after hours on the news. EMI shares are down nearly 2% in London trading Wednesday. Warner's decision leaves EMI Group to private equity group Terra Firma's 265 pence ($5.40) a share offer, though thus far, only 5% of EMI's shareholders have accepted that offer on the assumption Warner would try and outbid Terra. Warner's decision to pass on EMI will likely have negative ramifications for the entire recording industry. The Financial Times says Warner executives "were wary of increasing their exposure to the music business" with decreasing record sales and uncertainty of the profitability of digitals distribution, as a result of new players like Apple, whose iTunes dominates digital music sales. Warner was also concerned it wouldn't be able to unload EMI's publishing division, generally felt to be more profitable than its recording division, at a cost that would justify a bid above $4.9 billion. Warner retains the possibility of buying EMI's recording divisions, including the much sought after Capitol Records in the U.S. and Parlophone in the U.K. In 2006, Warner overtook EMI to become the number-three recorded music company globally with a 13.8% market share to EMI's 12.8%. Both trail leaders Sony BMG and Vivendi, who have a global share of 25.7% and 21.2%, respectively.

Sources: Press Release, Wall Street Journal, Reuters I, II, Financial Times
Commentary: Report: Warner Music Prepared to Sweeten Bid for EMI • Any EMI Offer Will Be in Cash -- Warner Music • Apple, EMI to Offer DRM-free 'Premium' Tracks, but No Beatles
Stocks/ETFs to watch: EMI Group PLC (EMIPY.PK), Warner Music Group (WMG). Competitors: Sony (SNE), Vivendi (VIVEF.PK), Apple (AAPL)
Earnings call transcripts: Warner Music Group F2Q07 (Qtr End 3/31/07) Earnings Call Transcript

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