Bertelsmann eyes EMI
Company would have 25% share of global music market
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According to German daily Sueddeutsche Zeitung, Bertelsmann officials are now looking at bringing EMI into the RTL Group. RTL was formed earlier this year from the merger of the TV assets of Bertelsmann, Belgium's Audiofina and Britain's Pearson. The newspaper quotes a source involved in the deal saying the chances of a union are "about 60 to 40."
Worried about the possibility of EU regulatory hurdles blocking a direct merger between BMG and EMI, Bertelsmann is proposing to make EMI part of the RTL Group. While Bertelsmann does not have a majority share in RTL, it does have the helm at the Luxembourg-based company.
Neither Bertelsmann nor EMI have commented on the plans, although EMI said last week that the German company had approached it about possibly combining their businesses.
BMG is the world's fifth largest music company, just behind EMI. A merger would make Bertelsmann the world's leading music company, with a 25% share of the global music market.
In a statement Friday, EMI said that it had been approached by Bertelsmann regarding a possible "combination."
EMI said the approach "did not involve an offer" and that "no detailed discussions have yet taken place."
Shares, stock listing sought
The inside word is that Bertelsmann is proposing to inject BMG into EMI in return for shares, in the process retaining EMI's London stock market listing. BMG is smaller than EMI and so would hold a minority stake in the enlarged group, albeit a controlling one.
Bertelsmann's move had been expected since Oct. 5, when Warner and EMI retreated on their proposed $20 billion marriage in the face of certain rejection by the European Commission.
The two said they would restructure their plans to make them acceptable to the EC, but conventional wisdom was that they would have to sacrifice too much.
Warner and EMI are still committed to exclusive negotiations until Jan. 31.
Some observers believe Bertelsmann chief exec Thomas Middelhoff, whose stated goal is to create the biggest record company in the world, unseating Universal Music Group, is trying to determine who else is interested in EMI before the exclusivity ends.
"I still think Bertelsmann will make an offer for EMI," one analyst said. "He's flushing out potential suitors."
EMI is currently valued at about £4.4 billion ($6.3 billion). Because Bertelsmann is privately owned, its value is undetermined.
Clearer road to approval
EMI/BMG would likely not encounter as many regulatory hurdles as Warner/EMI, in part because the former's combined market cap would be in the neighborhood of 25%, compared to more than 27% in the latter tie-up.
The projected cost savings for Warner/EMI were roughly $360 million; EMI/BMG would enjoy similar savings.
EMI stock surged 10% to $8.57 on the news. The shares closed at $8.04.
