Banking on regulatory bodies singing a new tune, Warner Music Group and EMI are considering resumption of merger talks “within months.”
Citigroup and UBS reportedly have been lined up to advise EMI, while Warner is said to have made a similar pact with Goldman Sachs and Lehman Bros.
After news got out in London Monday morning, EMI’s share price climbed to its highest level in nearly four years, closing at 294 pence ($5.24). WMG’s stock rose more than 5% on the New York Stock Exchange.
Companies have tried twice before to tie the knot, only to be stopped by European regulators. Deal would create a company worth an estimated $7.15 billion.
When European regulators rejected the deal previously, they said the combined company would pose anti-competition concerns. Now, Edgar Bronfman’s Warner and EMI likely are betting that Apple and the online music biz have made the landscape so difficult that a merger, they argue, is the only answer.
If merged, the two would be the third largest recorded music company, behind Universal Music and Sony BMG. The U.S. operations of both companies have been significantly scaled back in recent years and the two have been rebuilding in different ways in the last year.
Warner Music, for example, has been building niche operations that specialize in rock and hip-hop, while EMI has been pumping its catalog division and rebuilding its West Coast Virgin Records ops. This year, Warner is third but commanding an impressive 18% market share; EMI is in its usual fourth place with 10% of all sales.
Last week, EMI reported its first full year of growth in five years. Warners has seen stock price rise 60% in the last five months, earning big money for venture capital investors.
Both companies have publishing powerhouses that are benefiting from the variety of revenue streams being created by the Internet and mobile industries.
EMI owns Capitol, Virgin and Blue Note Records, whose rosters include Coldplay, Radiohead, the Rolling Stones and Norah Jones. Warner Music Group imprints include Warner Bros., Reprise, Atlantic and Nonesuch, with acts including Green Day, Neil Young, Madonna and current hitmakers T.I. and Juvenile.
In 2000, then owner Time Warner and EMI ditched a $20 billion merger plan. The two sides were talking again in 2003 when Edgar Bronfman Jr. and his investment team swooped in to buy the diskery. In 2004 — once the Sony BMG marriage was consummated — EMI and Bronfman again gave each other the eye, but nothing came of it.