EMI, Time Warner link to dominate global music

Britain's EMI Group Plc and Time Warner Inc confirmed yesterday they were merging their music businesses to create the world's top record company, worth $20 billion, with a powerful presence on the Internet.

The new music giant, Warner EMI Music, will bring together a star-studded roster of artists and catalogues in a 50-50 joint venture including Warner's Madonna, Eric Clapton and Phil Collins and EMI's Spice Girls, Beatles and Rolling Stones.

The US group, which earlier this month announced it was merging with Internet powerhouse America Online Inc (AOL), will have management control of the new combine which will have a global market share of around 20 per cent and annual sales of $8 billion.

In compensation for ceding control, EMI shareholders will receive a special cash payment of 100 pence sterling per share, costing Time Warner around $1.3 billion.

Coming hard on the heels of Time Warner's plan to merge with AOL, the EMI tie-up will catapult the US media giant into pole position for music distribution on the Internet, if it passes regulatory and shareholder approval.

"These two music companies in themselves will be the premier music company in the world but the affiliation with AOL and Time Warner will supercharge the entire proposition," Time Warner President Mr Richard Parsons told reporters.

But the jury remains out as to whether shareholders will be convinced by the deal's complex structure and the limited 100 pence a share upfront payout.

EMI shares jumped to a high of 810 pence when the deal was first unveiled before retreating to end the day 72 pence higher at 720, a gain of 11 per cent.

In New York, Time Warner shares fell $2 1/8 to $89 1/8.

"I think EMI shareholders are likely to be underwhelmed by this . . . EMI shareholders wanted a full takeout and a 50-50 joint venture with Time Warner holding a golden share is not what they anticipated," Mr Jeremy Batstone of NatWest Stockbrokers told Reuters Television.

Under the deal, Time Warner will have six seats and EMI will hold five seats on an 11-member board.

Mr Roger Ames, Warner Music's chairman, will head the new Warner-EMI venture as chief executive with Time Warner's Mr Parsons and EMI Chairman Eric Nicoli as co-chairmen.

Warner also has the right to acquire 8 per cent of EMI Plc if the latter's share price reaches £9 within the first 3 1/2 years following completion.

"This is certainly not the knock-out deal shareholders would have been looking for given that EMI is such a unique asset. There could be some feet dragging on voting this one through and they may have to provide a sweetener," said one fund manager.

Some analysts speculated that Warner's move on EMI - a perennial target of takeover speculation - may yet be challenged by rivals.

"I think we will see a third party coming in to the deal," said Ms Lorna Tilbian, media analyst at WestLB Panmure.

"Once the regulatory constraints are addressed it will give a third party a chance. It could be one of the US majors that lack music - Disney Corp or News Corp - it could be Yahoo!."

However, EMI Chairman Mr Eric Nicoli played down the idea, saying he had received no bid approaches, while Germany's Bertelsmann AG declared it had no intention of launching a counter-bid.

Some analysts added that few of the speculated potential bidders, which also included Sony Corp's Sony Music, would want to take on Time Warner.

"I don't rule out possible association [with a third party] in the future but we're not in talks with anyone about selling the company," said Mr Nicoli after noting the UK group had been in talks with a number of parties before choosing Time Warner.

The deal will create a powerhouse, combining well-known record labels including Virgin, Atlantic, WEA and HMV.

With global market share of around 20 per cent or 25 per cent of the European market, it will rival giant Universal Music Group, a unit of Canada's Seagram Co Ltd as the world's largest music publishing house. European Commission spokesman Mr Michael Tscherny was non-committal about the proposed tie-up, but noted the market was already dominated by a few large companies.