Warner Music have reportedly offered EMI a "break-fee" of between £50 million and £100 million as part of their bid to acquire the London based major. They would pay EMI the break-fee if any attempt by Warner to take over EMI was blocked by EU regulators.
The offer, assuming it really has been made, is a sign of two things. Firstly that Warner plans to compete with the private equity firms reportedly considering a bid for EMI, and secondly that Warner is now increasingly confident it could get a Warner/EMI merger past competition regulators in the European Union.
As previously reported, although there is seemingly growing interest in the City to buy EMI, the consensus is that the private equity firms will not bid as high as the 260p per share offered by Warner earlier this year. The private equity bidders, who cannot use cost savings in their existing operations to justify a higher bid, will hope that they can woo EMI's shareholders into a sale because there would be none of the regulatory risks of a Warner merger. Neither EMI's board nor their shareholders want to enter into an expensive merger but for it to be blocked at the final hurdle.
However, if Warner can convince EMI's shareholders that, because of their recently announced and slightly controversial alliance with pan-European indies body IMPALA (normally the most vocal opponents to major label mergers), the risks of regulator troubles are few and, anyway, should it not succeed then they will cover the costs of a failed merger, then said board and shareholders, who won't be too keen to go below the 260p sale price, given bid prices in excess of 300p have been turned down in the past, may well be finally convinced that the Warner deal is, after all, the best on the table.
EMI, which last week made internal financial information available to potential bidders, has reportedly requested that anyone interested in buying the firm make formal offers by Wednesday, the day its full-year results are published. That said, insiders say EMI chiefs don't expect some possible bidders to meet that deadline, and are likely to extend it.
Meanwhile, some gossipers are saying that EMI execs now accept a Warner merger is almost inevitable, but that they are courting the private equity types in a bid to force up the price or better the deal Warner boss Edgar Bronfmann Jr has to make in order to achieve his long held ambition - to run a record company of similar size to the Universal Music mega-major he created but then lost control of in the late nineties.