Warner's nod for EMI bid rival

MUSIC giant EMI today conceded that it has probably lost the bid battle for Warner Music. Failure to merge with Warner could leave EMI, the world's third-largest record company, out in the cold as the music industry consolidates and with no clear alternative strategy.

After heavy falls yesterday, EMI shares topped the FTSE 250 decliners today as its stock tumbled a futher 9 1/2p to 160p. The losses wiped around £100m from the value of the firm to £1.23bn.

Last night, Time Warner was reported to have given rival bidders, led by former Seagram boss Edgar Bronfman Jnr, until the end of this weekend to firm up its $2.5bn offer. EMI's mix of cash and shares was said to be worth $1.6bn.

EMI said it had not given up hope completely but analysts fear that it may be left partnerless during the rapid consolidation of the world's recorded music industry at a time when sales are falling.

Chairman Eric Nicoli said: 'Time Warner have tonight informed us that they are now considering a possible proposal from another party as an alternative to our own firm offer. Following a rigorous assessment of the business and opportunity to create value, we have put forward a full and fair offer with the interest of shareholders uppermost in our minds.'

Analysts said this was a clear signal that the group would not overpay for Warner Music and perhaps had little more headroom in the borrowing facilities already in place.

Some industry observers think EMI shares could recover quickly as investors show relief that the Warner deal is off and the group can concentrate on its own recovery and winning market share with its roster of artists including Norah Jones, Coldplay, Robbie Williams and the Beatles.

At the same time it is likely to have racked up significant fees on the offer although considerably less than the £43m it spent in 2000 on its last attempt to merge with Warner which was blocked on competition grounds.

According to West Coast sources, Time Warner has asked for an early meeting with Bronfman and financier Haim Saban and has not yet categorically ruled out the EMI offer.

One attraction of the British company's bid is that it allows Time Warner to keep a significant equity stake in the recorded music business.

Bronfman and his venture capital backers, which include Thomas H Lee Partners, Bain Capital and Providence Equity Partners, are reportedly looking at ways of offering Time Warner equity in the ongoing business with a kicker that it goes on to merge Warner with another music major.

Warner is the world's fourth-largest recorded music group, with Madonna, REM, Linkin Park and the Red Hot Chili Peppers on its lists. A Warner-EMI combination would have had just under 25% of the world market.