The New York Post has questioned whether Warner Music could afford to bid for the whole of EMI, despite rumours one of the motivations for selling the Warner music company to Access Industries earlier this year was to fix the major’s balance sheet so to enable a Warner/EMI merger, a long held ambition of Warner CEO Edgar Bronfman Jr.
The Post cites Anthony Canale of Covenant Review, who says that a covenant agreement linked to a bond sale instigated by the major’s new owners to raise funds to pay the music company’s outgoing shareholders prevents them from entering into any further billion dollar plus acquisitions if and when Warner’s debt-to-earnings ratio exceeds 4.6 to 1 which, Canale reckons, it nearly has.
No, I don’t know what that means either. But Canale told The Post: “My initial conclusion is that means it cannot buy EMI”. Though, it’s worth adding, another source told the New York paper that cost savings a merger with EMI would allow within the existing Warner business might be enough to make the figures work so to allow a merger bid.
Of course, all this assumes current EMI owner Citigroup would sell to Warner, given the regulatory hurdles any EMI/Warner merger will face.