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"After exhaustive analysis and discussion, we have been unable to find a deal with Bertelsmann, which works both for shareholders and for the regulators."
——EMI Group Chairman Eric Nicoli
EMI-BERTIE DEAL: OVER AND OUT
But The Question Remains: Will Anyone Believe Us Even After The Official Word From EMI?
For once, we got something right. On Tuesday (5/1), EMI and Bertelsmann announced the termination of their merger talks, verifying a story we'd broken three weeks earlier (hitsdailydouble.com, 4/11).

"After exhaustive analysis and discussion, we have been unable to find a deal with Bertelsmann, which works both for shareholders and for the regulators," said EMI Group Chairman Eric Nicoli, in a relese that also included a preview of the company's positive earnings report for fiscal 2000—a preemptive strike made to prevent EMI shares from plummeting.

"I am delighted that we have produced very good results and further strengthened our business despite the inevitable distractions over the period of merger discussions," Nicoli took pains to point out. "Finally, I want to say that our dealings with Bertelsmann have been constructive and friendly throughout. A very positive relationship has developed between our two companies and I wish the Bertelsmann team well for the future." Sniff-sniff. Touching.

The decision is also a blow to Bertie CEO Thomas Middelhoff, who had boasted in recent months that he would create the world’s biggest music company . Dutifully, BMG Entertainment Chairman/CEO Rolf Schmidt-Holtz protected his boss, insisting that "a merger is not essential for BMG's continued success."

Sources had been speculating that the sale of Virgin Records, one of EMI’s labels, was central to the breakdown of the merger. EMI, however, had ruled out the sale of Virgin, which, though it might have appeased regulators, was considered too high a price to pay for doing the deal—possibly damaging EMI's long-term value.

Like last year's scrapped EMI-WMG deal, the merger with BMG would have reduced the number of major record companies in the world from five to four. "The concerns in the case of possible merger were quite similar," said European Commission spokeswoman Amelia Torres. "The gist of the concerns were basically about the high degree of concentration that would have further reduced the players worldwide."

While antitrust concerns were a factor in the scrapping of the deal, they weren't the only one. Inside sources said that many in the EMI hierarchy were never enthusiastic about getting in bed with Bertie, and that Middelhoff's recent aggressive media posturing may have been the final straw.

Expect EMI to now look to make worldwide distribution deals and possibly get out of manufacturing and distribution, as well as focus on growing its U.S. business. As for other possible suitors, Rupert Murdoch's Newscorp has shown no interest in entering the music business, apart from son James' test drive, and Disney isn't going to peel the big bucks required to play the game.

BMG, meanwhile, has another problem—its distribution deal with Jive/Zomba is almost up. A possible solution would have Clive Calder selling his company to BMG and becoming head of BMG's worldwide operations.  Meanwhile, every EMI and BMG label head in the U.S. breathed a huge sigh of relife. Ain't this a wacky business?

Meanwhile, to prevent its stock from doing completely in the dumper, EMI released its unofficial trading results for the year ended March 31. The official numbers will be presented in detail on May 22—expect exciting full coverage of that event right here (and then in the Bulletin a day later).

Based on unaudited results, group sales improved by 12% to almost 2.7 billion pounds and group operating profit increased by 14% to approximately 330 million pounds. Adjusted profit before tax increased by 6% to approximately 260 million.

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