Analyst: Universal Music Play for Part of EMI May Be Right Deal at Wrong Time

8:44 AM PST 11/09/2011 by Georg Szalai

UBS expert Polo Tang says an acquisition could hurt investor sentiment toward corporate parent Vivendi following a report that the music label is in the lead to acquire EMI's recorded music unit.

NEW YORK - Amid a report in the Wall Street Journal saying that Vivendi's Universal Music Group has re-entered deal talks for EMI's recorded music unit and is the lead bidder, UBS analyst Polo Tang on Wednesday assessed the pros and cons of a potential acquisition.

The Journal said that Universal Music previously withdrew an EMI bid amid an impasse over pension liabilities, but returned after other bidders dropped out and could seal a deal for around $1.5 billion.

"Strategically, an EMI deal would make sense in terms of geographical fit, cost synergies and potentially buying into an industry that is showing tentative signs of a turnaround after a decade of decline," Tang wrote. "However, we think the timing is poor given the limited credit rating headroom that Vivendi has." He said that further downgrades at a telecom unit could make it difficult to maintain the company's credit rating and current dividend.

Tang, who maintained his "neutral" rating on Vivendi's stock, concluded: "The prospect of further M&A with an EMI deal could be negative for investor sentiment" following a recent decision to buy a minority stake in Poland's largest TV network TVN.

He said that Universal may have to divest some EMI assets in Europe to avoid regulatory problems.

Universal's main competitor for EMI's recorded music unit, Warner Music Group owner Access Industries, appears resigned to losing out in the auction, the Journal said.

The paper also reported that Sony Corp.'s music unit is a key contender for EMI Music Publishing along with a partnership between private equity firm KKR and Bertelsmann. A music publishing sallied could fetch as much as $2 billion, the paper said.

Email: Georg.Szalai@thr.com

Twitter: @georgszalai

comments powered by Disqus