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Company Town | THE BIZ

Murdoch May Change Tune on EMI Purchase

November 20, 1998|CHUCK PHILIPS and JAMES BATES

News Corp. is weighing a bid for British music giant EMI Group, home to such stars as Garth Brooks, the Beatles and the Beastie Boys.

No proposals have yet been made, but James Murdoch, vice president of music at News Corp., met with EMI's top brass in London this month, and senior executives at News Corp. have been discussing the possibility of an acquisition since, sources said.

"We look at all sorts of opportunities all the time, but we don't comment on speculation," Murdoch, the youngest son of News Corp. Chairman Rupert Murdoch, said Thursday.

The conglomerate is in a strong financial position to make a major acquisition. Last week, the company raised $2.8 billion by selling an 18.6% stake in the Fox Entertainment Group to public shareholders. The proceeds are being used in part to pay off News Corp. debt, which will aid the company's ability to make a large purchase.

Rupert Murdoch has previously said he believes music isn't necessarily critical to his operation and has passed up buying music companies because of the huge premiums that were asked.

In today's market, music industry sources believe, News Corp. would have to spend about $7 billion to acquire EMI--nearly $2 billion less than it would have cost in April, when Seagram Co. left the British giant standing at the altar and decided to buy PolyGram instead.

Sources said News Corp. took a close look at PolyGram in the spring when Philips Electronics put it up for sale but decided that the deal wouldn't offer the synergies to be worth the $10.4 billion that Seagram was willing to spend.

In the past, Murdoch has said that he views the music industry as something of a mystery, but he does believe that from a purely financial standpoint it's a much better business than movies because of the huge amounts of cash it generates and its lower cost structure.

In an interview last month with The Times, EMI Group Chairman Colin Southgate said that he had occasionally met with Rupert Murdoch but never had a discussion with him about buying EMI. "I don't think EMI is on his agenda at all," Southgate said in the interview.

On Thursday, a representative of EMI said the company would neither confirm nor deny whether it had been approached in recent weeks about a possible purchase by News Corp. "We do not comment on rumors about who we do or don't meet with."

Australia-based News Corp., which has U.S. headquarters in New York, already has a small music division. It includes a soundtrack label at Fox in Los Angeles, the Rawkus rap label in New York and the Mushroom Records label and Festival distribution company in Australia--all of which report to Murdoch's 26-year-old son, James. Sources said that James wants to expand the corporation's presence in the music business and is pushing to acquire EMI.

This week, top officials at News Corp. also began kicking around the idea of buying 20% of EMI's stock, sources said. Such a move would not dilute News Corp.'s earnings.

Presumably an investment of that size would bring News Corp. a seat on EMI's board of directors, allow the company to more closely examine EMI's financial condition and ward off other suitors considering an eventual purchase. Bertelsmann Music Group is said to be eyeing EMI and might consider buying the company if the price tag drops below the $5-billion range.

EMI--which boasts such labels as Capitol Records, Virgin Records and Priority Records--has had sluggish results in its worldwide operations this year due to poor financial conditions in Asia and Latin America. In the U.S., EMI has posted strong results thanks to a series of hits from Priority-distributed No Limit Records and is expected to top U.S. pop charts next week with a new album by Garth Brooks.

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