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EMI, Bertelsmann talk deal
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November 10, 2000: 4:30 p.m. ET
UK music group, thwarted in Warner venture, eyes deal with German firm
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LONDON (CNNfn) - German media powerhouse Bertelsmann AG has approached Britain's largest music company, EMI Group PLC, about a combination, a sign the British company isn't wasting any time looking for a partner in the wake of a failed plan to link up with U.S.-based Time Warner Inc.
In a statement Friday, EMI indicated that privately-held Bertelsmann is not looking to buy EMI outright, and said that there are no assurances a pact will result. Industry sources told Reuters Bertelsmann is interested in rolling its BMG music unit into EMI, in return for a stake in EMI. The British firm is currently valued at about $6 billion.
 Late Friday, Bertelsmann issued a statement confirming its interest in doing a deal with the British firm, and EMI refused to add to its brief written statement.
Speculation that Bertelsmann would be looking for deals accelerated following last week's announcement it had struck a pact with the popular online music-sharing service Napster. EMI's labels represent popular artists such as the Spice Girls, Fat Boy Slim, and Radiohead. BMG's artists include Whitney Houston, David Bowie, and Christina Aguilera.
EMI also controls a very lucrative publishing roster of songs.
The talks come just weeks after EMI (EMI) and Time Warner (TWX: Research, Estimates), the parent of CNNfn, pulled the plug on a planned $20 billion joint-venture involving their music units.
Those two shelved their deal after it became clear European Union regulators, who were at the time also inspecting America Online Inc.'s (AOL: Research, Estimates) $109 billion purchase of Time Warner Inc., would seek to block the venture. The EU was concerned the companies would have a dominant position in the online delivery of music. The EU  subsequently allowed the AOL/Time Warner merger to proceed.
Time Warner and EMI, who had promised to rework their deal to make it more palatable for EU regulators, denied a report Tuesday in the Financial Times saying their attempts at forming a joint venture were on the brink of collapse.
On Friday, a Time Warner spokesman reiterated the company's wish to structure a deal with EMI, one that would pass regulatory muster in Europe.
Bertelsmann and Hong Kong-based Internet and communications service provider Pacific Century CyberWorks have both reportedly been interested in striking a deal with EMI.
While recent reports said Bertelsmann has been interested in a move for suddenly-single EMI, the actual approach from Bertelsmann came Friday, said one person familiar with the matter.
Sources close to the matter said talks are currently under way and are expected to take place in London and New York in the coming days.
Bertelsmann driven towards growth
Alliance has become a new buzzword in the music industry. Larger, old-school music publishers have been jockeying for position in what they see as a potentially lucrative market for the delivery of music via the Internet.
Among the panoply of options available to an EMI-BMG pact include pooling the music assets into a single joint venture, and then taking public a portion of stock in the new entity. Also on the table is a plan to roll the music assets of BMG into EMI and, in exchange, Bertelsmann would get shares in the British company, one person said.
Bertelsmann is currently the world's fifth-largest music company, and Chief Executive Thomas Middelhoff earlier this year laid out his ambition to leapfrog to the No. 1 spot in the industry. Industry watchers said a belief pervades within the German company's executive chambers that Bertelsmann Music Group is too large to fall apart, but too small to survive on its own.
For its part, EMI also is widely seen in the industry as needing a partner. Bertelsmann, whose assets span much of the media business, caught its rivals off guard with its nimble move to line up with Napster -- suddenly forcing those competitors to seek similar deals with online partners or risk getting left behind in cyberspace delivery of music. The Napster deal, said one music industry watcher, has made BMG suddenly an attractive partner for EMI.
 Bertelsmann's pact with Napster, which is far from completed, broke ranks with its big-name industry counterparts, each of which had filed legal action to defend their copyrights against the upstart online music provider.
"If the Napster alliance takes off and suddenly Bertelsmann steals a march on the others, EMI gets a ride on Bertelsmann's coattails through a deal," said Hamish Champ, managing director of industry journal MBI.
EMI shares jumped 10 percent on the announcement Friday, but gave up most of that gain to stand 16 pence higher, or 2.9 percent, at 561.25 in late afternoon trading on the London Stock Exchange.
BMG, Warner Music, EMI, Japan's Sony Music Entertainment and Universal Music Group form the world's top five music firms. Universal is a unit of Canada's Seagram Cos. Ltd. (VO: Research, Estimates), which is being bought by French media and utility company Vivendi SA (PEX). 
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