EMI retuning music merger

BMG, competish renew courtship of label

NEW YORK — Following a dismal year for the record biz — and EMI Group in particular — there are indicators on both sides of the Atlantic that the troubled U.K. music major could merge with one of its rivals before the year is out.

Even as the last free-standing music major insists that it can weather the market turbulence alone, its market value has sunk to just $2 billion. That makes it a very attractive target — even for its cash-strapped competitors.

Emerging once again as the most likely buyer is a familiar name to EMI-watchers, the Bertelsmann music division BMG. Reports have surfaced that the German media giant could combine the two majors, then split them off into a label giant with nearly 25% market share.

At the same time, pundits are still making odds on a tie-up between EMI and Warner Music Group, home to imprints Warner Bros., Elektra and Atlantic.

Both Warner and BMG have said in the past that they wouldn’t rule out another go at EMI — nor has the British major denied that it would consider an offer if the terms are right. And a combination with either partner would give EMI a much-needed boost in the U.S. — a market in which it has struggled to gain a foothold for years.

A BMG rep declined Monday to comment on merger speculation, while EMI and Warner Music were unavailable for comment over the Martin Luther King holiday.

Seem familiar?

Both deals have been tried before. In a deal then valued at $20 billion, Warner made a play for EMI just after the AOL Time Warner merger; BMG had its shot a year later. Both deals were scuttled by European regulators, who were fearful of too much market concentration.

But that was before the industry had back-to-back sales declines in 2001 in 2002, as the economy contracted and piracy took a hefty bite out of the market. With the record biz in crisis, analysts say, the competition authorities may have a change of heart.

EMI has even had callers from beyond the music business — most notably DreamWorks, which had advanced talks about acquiring the label, only to be stymied by a dispute over valuation.

Financially, EMI is ripe for the picking. The company is trading at record-low valuations, and has trimmed down both its employee headcount and its artist roster dramatically over the past year. The company’s roughly $1.4 billion in debt could be a stumbling block, however.

Buyers beleaguered

Unfortunately, the label’s would-be suitors have some difficulties of their own. BMG is still digesting its $2.74 billion purchase of Jive Records and may not be in a hurry to make any more big purchases in the near future. And AOL Time Warner has its own tumbling stock price to worry about — not to mention ongoing concerns about the health of its Net business.

Still, with many music execs seeking strength in numbers during a dismal overall market, EMI’s days on the singles scene may be numbered in 2003.

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