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Warner Music declines to bid for rival EMI

Sources told Reuters earlier Tuesday that Warner was unlikely to bid for EMI as such a deal would be too expensive.

The British company agreed to a 2.4 billion-pound ($4.7 billion) takeover from private equity group Terra Firma in May, thwarting a seven-year flirtation between EMI and Warner.

Warner, which has been grappling with its decision, faced a Thursday deadline set by Britain's Takeover Panel on counter-bidding for EMI.

The U.S. group has been considering all options, including a counter bid, walking away altogether, or just waiting to see if it could buy the recorded music division from Terra Firma at a later date.

"Warner is making a bet that it doesn't want to bet the ranch on an incredibly expensive expansion," said Bishop Cheen, analyst at Wachovia Capital Markets LLC. "They are making a bet they don't have to have EMI to survive, to thrive, to prosper."

Analysts had speculated that to win EMI, Warner would need to significantly out-bid Terra Firma's offer of 265 pence a share. Some said it would need to be at least 300 pence per share to succeed. Warner's last formal bid for EMI was in February, at 260 pence a share.

"The multiples on the business (EMI) have doubled while the business has declined," said a source familiar with the talks who spoke to Reuters earlier in the day.

Cheen has said in the past that Warner's chief executive, Edgar Bronfman Jr., was very keen on owning EMI, but that the decision would come down to Warner's private equity owners.

Warner Music was bought for $2.6 billion by an investor group led by Thomas H. Lee Partners, Bronfman, Bain Capital and Providence Equity Partners. They took the company public the following year although the three private equity groups still own about 62 percent, according to Reuters data.

Now that Warner has decided not to bid, it could devote its energy to growing its publishing unit and diversifying in areas including artist management, touring and merchandising.

Warner took its time making a decision amid changes in the recorded music industry, which has been hit by people moving from traditional CDs to digital songs that are downloadable from the Internet and therefore more subject to piracy.

CD sales were down nearly 20 percent year-on-year for the first half of 2007 and the industry's hopes that digital music sales would make up for the shortfall have yet to be fulfilled.

EMI shares closed at 267 pence, up 0.2 percent, in London. (Additional reporting by Yinka Adegoke)