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“This is not a material loss for either Universal or Sony if they don’t win. There’s a lot more money riding on it for Warner Music Group.”
——an unnamed source

RUMORS FLY AS EMI DERBY BUILDS TO A CLIMAX

Latest Media Reports Contain Plenty of Intriguing Tidbits, Some of Which May Actually Be True
Since second-round bids came due for EMI last Wednesday, the rumormongers and unnamed inside sources have been working overtime, dropping all sorts of morsels—presumably ranging from wild speculation to planted disinformation—into the hands of business reporters on both sides of the Atlantic.

There’s general agreement about the identities of five of the participants: UMG, Sony/ATV, Warner Music, KKR’s BMG Rights Management and Ron Perelman’s MacAndrews & Forbes, though it remains unclear which, if any, of the four strategic bidders Perelman has hooked up with.

There’s also a near consensus on valuation, with EMI Music Publishing worth between $1.7 billion and $2 billion, while recorded music is worth between $1.3 billion and $1.5 billion. And most now believe EMI will be split up, partly because of the shaky debt market, and partly because most of the bidders don’t appear to be interested in snagging the whole enchilada.

As for the latest intrigue, WMG owner Len Blavatnik is rumored to be considering dropping his bid because Citi is taking too long to make up its mind. Blavatnik employed a similar tactic to get Warner. Additionally, Citi acknowledged that EMI has $600 million in pension liabilities, representing another headache for the buyer.

The N.Y. Post’s Claire Atkinson reported on Sunday that Citigroup brass spent Friday in a frenzy of activity, phoning bidders and asking for more “details” about second-round financial submissions, and telling participants it may close the sale by Oct. 21.

As Atkinson pointed out, UMG and Sony Music are neck-and-neck in year-to-date marketshare at about 29%, so that the addition of EMI’s 9% would give either Lucian Grainge or Doug Morris supreme bragging rights as the biggest player in recorded music. But the prevailing belief is that Sony wants only EMI Music Publishing, which would render this dramatic head-to-head contest between the mentor and his protégé a non-starter. She further notes that Universal has an advantage in that it doesn’t need to arrange outside financing, given that its owner is cash-rich Vivendi. Meanwhile, sources tell her that Sony Music is still holding talks with Sean Parker and Ron Burkle about making a joint bid on records.

As for the pubco competition, EMP had a 19.7% share of the global market in 2010, compared with Sony/ATV’s 12.5%. Sony has the backing of Abu Dhabi’s sovereign fund Mubadala for its bid, and the blessing of Jackson estate co-executor John Branca; the estate is a 50/50 partner in Sony/ATV. If the Marty Bandier-led pubbery gets EMP, it would likely vault to the top of the publishing rankings. But don’t forget, Sony/ATV is not part of Sony Music but is co-owned by the parent company.

“This is not a material loss for either Universal or Sony if they don’t win,” an unnamed source offered. “ There’s a lot more money riding on it for Warner Music Group.”

Among the other revelations—or fabrications—ladled out by Atkinson’s sources:

A failed bid would likely mean Edgar Bronfman exits to his next venture, leaving the reclusive restructuring expert and CEO Steven Cooper with a much tougher turnaround task.

If BMG—which just acquired Bug Music for $310 million—gets EMP, it might want the experienced Faxon to stick around to help oversee the rapidly expanding company.

Perelman, who’s bidding on the whole, had been teamed with Sony on a bid for Warner, but he’s been far from clear on who his preferred partner is this time around.

And with the specter of Guy Hands’ disastrous purchase of EMI looming large, no one wants to make a mistake and overbid.
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