EMI rejected a £2.1 billion, 260p a share all-cash bid from Warner Music yesterday, arguing that the price was too low and that it could not accept an offer that would entail months of regulatory uncertainty.

The rejection, made at a scheduled EMI board meeting, means that Warner Music is unlikely to take advantage of EMI’s current difficulties. The American company is considering a higher bid of 280p but that too is unlikely to convince the EMI board.

EMI is particularly worried that it would be months before any deal is approved by the regulators, at a time when it is desperately trying to stabilise after two profit warnings and to deliver a major restructuring programme amid a sharp decline in the music market.

The British music major, home to Robbie Williams and Joss Stone, said that Warner Music’s offer, which was conditional on winning regulatory approval, would “entail prolonged regulatory uncertainty and unacceptable operational risk at a critical time for the company”.

This is the fourth time that Warner and EMI have been involved in merger talks this decade, an on-off saga that must rank as the longest running, inconclusive, takeover battle in modern corporate history.

Any deal would have to be approved by the European Commission, which only this week said that it would take several more months to reexamine the legality of the merger between Sony and BMG. Approval for the Sony BMG tie-up would equate to a green light for an EMI-Warner deal.

Warner Music’s offer came on Thursday, timed to arrive just before the board meeting. The company had been weighing up whether to strike quickly, or wait to see if EMI could reach a deal with the private equity firms showing interest in bidding.

However, Warner Music believed there would an advantage to getting the bid on the table as the EC is considering the Sony-BMG deal, because Warner Music has reached an agreement with Impala, the trade body that represents most of the world’s independent labels, over the merger.

Edgar Bronfman, the chief executive of Warner Music, has offered to spin off some unspecified record labels, and to help to fund the independents’ effort to build their own digital distribution technology. Sony BMG, by contrast, has offered no concessions to get its deal through.

Warner Music, home to Madonna and James Blunt, is trying to take advantage of EMI’s problems, although it too is struggling. EMI last month gave warning that its recorded music sales would be 15 per cent down on last year in the six months from October, but Warner’s own recorded music business gave up 16 per cent between October and December.

EMI wants to buy time to recover, unless Warner Music or any of a cluster of private equity firms circling come up with a knock out bid, which is unlikely to be less than 300p. But EMI shares improved only 10½p to 246¾p, reflecting a belief that no acceptable bid is likely to come through at this time.

Warner Music shares, listed in New York, added 12 cents to hit $19.70.

Play it again

Jan 2000
Time Warner agrees to buy EMI; merger later abandoned because of objections
June 2003 EMI tries to buy Warner
Nov 2003 Edgar Bronfman beats EMI to buy Warner
May 2006 EMI bids again but Warner declines offer
June 2006 Both sides bid for each other but fail
July 2006 Regulator reexamines Sony-BMG deal, talks end
Jan 26 EMI announces plans to merge its US labels, Capitol and Virgin
Feb 14 EMI issues second profit warning. Shares fall by 12 per cent to 210p
Feb 20 Impala, the independent record association, said it would approve an EMI-Warner tie
Feb 21 First reports of Warner Music’s renewed interest in EMI

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