"The reason we're taking a rigorous and cautious approach to the Bertelsmann opportunity is that the regulatory landscape has changed dramatically over the last year."
——EMI Chairman Eric Nicoli


Still Confident A Deal Can Be Made, EMI’s Nicoli Dismisses Do-Or-Die View Of Merger As Company Releases First-Half Earnings
Despite reports of quickly progressing talks, a spokesperson for EMI Tuesday (11/21) said it was still "far from clear" the company could forge a merger with German media giant Bertelsmann. According to Reuters, it could take weeks to hammer out a deal acceptable to regulators.

This news came in conjunction with the news that EMI's first half pre-tax profit had fallen 31.7%, from 86.5 million pounds to 59.1 million pounds (roughly $84.16 million). Analysts had forecast pre-tax profit of around 57.5 million pounds. Net earnings per share, before exceptional items and amortization were 4.25 pence, 27.4% lower than for the same period last year.

Group revenue in the first half increased by 5.9% to 1.1 billion pounds (approximately $1.5 billion), with operating profit, excluding the contribution from new media activities, ahead by 10.1%. Group operating profit was 111 million pounds (approximately $144 million), thanks to new media income of 6.1 million pounds, but it was still down 6.9% from last year's total, which had benefited from the inclusion of a $31 million payment from musicmaker.com.

Global Recorded Music marketshare was up to 13% from 12.7%, while Music Publishing operating profits were up 15%. EMI's U.S. marketshare slipped to 9% from 12.3% the previous year, while revenues from recorded music increased 3.3% as the total market declined 3.9%.

In addition, the company wrote off some 42.9 million pounds in legal costs directly related to the proposed merger with Time Warner's Music Group.

Said EMI Group Chairman Eric Nicoli: "We have a compelling strategy and plan for our existing businesses, which have excellent prospects with or without a merger. I am satisfied with our first-half results, and I look forward to further progress in the second half. Our second-half release schedule in Recorded Music is one of the strongest for many years, and Music Publishing continues to perform strongly. We are well-placed to achieve our growth objectives for the full year."

Since its proposed merger with Warner Music Group fell through after close to a year of negotiation, EMI has been hoping these merger talks could be put on the fast track. Some have even speculated that Bertelsmann head honcho Thomas Middelhoff may have done some preliminary legwork to grease the wheels of progress with European Commission head Mario Monti.

Nicoli said that talks with Bertelsmann—now just 11 days old—had not resolved key issues such as management, price and, most importantly, appeasing regulators. The British company is, apparently, also continuing talks over an alternative deal with WMG.

"The reason we're taking a rigorous and cautious approach to the Bertelsmann opportunity is that the regulatory landscape has changed dramatically over the last year," said Nicoli, a man who is intimately familiar with the rise and fall of the regulatory landscape over the last year. "We need fully to understand the implications of any combination before we put a deal to shareholders."

Despite the dour cloud that overhangs this deal, Nicoli insists that EMI's survival doesn't depend upon a merger—whether with Bertelsmann or some retooled deal with WMG. "We have an exceptionally good business with excellent prospects without a merger," Nicoli said.

The EMI chairman also dismissed suggestions that his head was on the block if he couldn't orchestrate a merger. "I don't think our board is minded to punish management for taking initiatives that create enormous shareholder value," he said. "The board is showing no signs other than being entirely supportive of the initiatives we take."