Company Town : Q & A : He Laughs in the Face of Takeover Talk


Thorn-EMI Chairman Sir Colin Southgate has something that Sumner Redstone, Michael Eisner and Edgar Bronfman Jr. want--and it isn’t his furniture rental company.

What the heads of Viacom Inc., Walt Disney Co. and Seagram Co. have their eye on is EMI Music--the only viable takeover target left among the large record companies.

EMI consists of such record labels as Virgin, Capitol and EMI, which release music by such stars as Janet Jackson, the Smashing Pumpkins, Garth Brooks and the Beatles. The London-based conglomerate, which also includes the world’s second-largest music publishing unit as well as the HMV retail record chain, inched up from sixth place to fifth last year in the $12-billion U.S market, with an estimated 10.1% share in album sales.


But don’t expect a bidding war to break out in April when Southgate announces at the annual shareholders meeting that EMI plans to divide its music division and its furniture rental arm into two publicly traded companies.

First off, Southgate adamantly denies that EMI is on the auction block. Second, he fancies the firm’s value to be upward of $10 billion--at least twice the amount that Disney, Viacom, Seagram--or other potential suitors such as Fox’s Rupert Murdoch, PolyGram’s Alain Levy or New World Communications’ Ronald Perelman--think it is worth.

Thanks to a recent acquisition of Virgin Records, EMI Music has a strong presence internationally. The firm has had less success breaking new acts in the United States. EMI’s domestic gains last year can be attributed partly to shrewd marketing of old Beatles recordings.

But the conglomerate is about to re-sign Janet Jackson and is a serious contender in the bidding for singer Don Henley and for cutting-edge Interscope Records.

The son of a wholesale fruit merchant, Southgate entered the corporate world in the early ‘60s, designing customized computer programs for large companies. He arrived at Thorn in 1983 after the century-old electrical and defense conglomerate purchased Software Sciences, a firm that he and his father-in-law founded. In 1987, he was appointed chief executive and took over two years later as chairman of Thorn-EMI, which has undergone considerable downsizing on his watch.

In a rare U.S. interview, the charismatic 57-year-old chairman, knighted by the queen of England in 1992, spoke about the rumored sale of EMI and the turbulent record business.



Q: Is EMI Music for sale?


A: No. We are still in the final process of making the decision as to whether we are going to de-merge the two businesses or not. The decision to do that will be done on the basis of what is best for our shareholders. But if we split the business, that doesn’t mean that either is for sale--because they are not. After the split, each shareholder will get two separate shares--and they should be very happy campers.


Q: Why are there so many reports about interested suitors such as Sumner Redstone, Michael Eisner, Edgar Bronfman Jr. and Rupert Murdoch meeting with you?


A: I haven’t met with anybody for months. And I do mean months, not days or weeks. But of course I meet with these guys. Why wouldn’t I? We’re all in the same business.


Q: It’s well known that they are shopping for a record company and have considered yours.


A: Well, I’m sure that is their position. They would love to buy this wonderful asset, but we are not putting EMI on the block for sale. Now obviously, I have a fiduciary responsibility to my shareholders that if one of these individuals walked in and offered zillions, I would have to look at it. And if I thought it was an offer that the shareholders shouldn’t refuse, I would take it to them and suggest they take it.


Q: What would you say the company is worth?


A: Our market capitalization at the moment is 5 1/2 billion pounds--that’s

with the [furniture] rental. To buy it, the percentage they’re going to have to add to it would be 40% or 50%, I imagine. By itself, I would say that the music business is worth 5 billion pounds . . . that’s around $7 3/4 billion. And, of course, you’ll pay a premium on top of that. You do the arithmetic.


Q: You’re saying the company is worth more than $10 billion?


A: Yeah.


Q: Considering the amount of revenue EMI generates, people here say it is unlikely that anyone would pay more than $5 billion.



A: Five billion dollars? (Laughs loudly) Yeah, OK. Well, good luck to them. That will never happen. Forget about that. I might buy it myself for $5 billion. But seriously, I promise you I am not here attempting to sell EMI. I put 10 years of my life into fixing this business. Do you think I’m going to just turn around and sell it? You must be mad. Now, I might be forced to though, because I’m an honest fellow and, in the end, if that’s what the shareholders want, it might happen. But it is not my intention. My intention is to let this business stay independent for a long time, certainly while I’m still alive.


Q: Capitol Records has been criticized here for leaning on catalog sales and not breaking new acts.


A: I agree that we need to improve our new artist development. But at the same time, you must give creative people the space to do what they’re trying to do. To turn over management every five minutes, like you see happening elsewhere, is absolute nonsense. At least everyone at EMI has been in place for more than 10 nanoseconds, right? It may not be going at the pace that the world would like it to go at, but I’d rather it be solid and secure than a company with a bunch of one-day wonders. I think that [president] Gary Gersh is doing a great job at Capitol. How everybody thinks he’s supposed to come in there and work wonders in five minutes where others have failed, I don’t know. You guys in Hollywood are a very impatient lot, I must say.

(Laughing repeatedly) Why don’t you take time out and phone up [Michael] Ovitz and [Michael] Eisner and ask them what’s happening with Hollywood Records? Why don’t you go over and talk to those guys at Warner and ask them how, well, how are you doing with your managers now? Have you got any left? Can you find anybody to run the place for more than five minutes? Then go down to Edgar [Bronfman Jr. at Seagram] and say, well how many more people are you going to sign up to start new labels?

All I want people to know is that we’re happy campers at EMI right now, thank you very much. We’re not having to put out profit warnings or anything like that. EMI is performing very well and we’re not for sale.

Here today, gone tomorrow: In what has to be one of the shorter executive stints in Hollywood, Joe Singer has gone back to producing after less than 90 days on the job as executive vice president of production at MCA’s Universal Pictures.


Singer, a former commercial fisherman and investment banker, got his break in Hollywood less than four years ago working with producer John Davis. Movies he’s worked on as independent producer include the Universal film, “Daylight,” starring Sylvester Stallone and the Fox 2000 film, “Courage Under Fire,” starring Denzel Washington and Meg Ryan.

Staff writer James Bates contributed to this column.


Stanzas for Sale

Thorn-EMI, whose music division is considered the last viable takeover target among large record companies. plans to seperate the division and its rental arm into two companies later this year. A look at Thorn-EMI:

* Headquarters: London

* Chairman: Sir Colin Southgate

* Employees: More than 33,000 in more than 40 countries

* Major divisions: EMI Music operates 65 record companies, including Virgin and Capitol Records; Thorn rents products including furniture and home electronics; and HMV is the company’s retailer of recorded music and entertainment products.

* 1995 profit: $667 million


Thorn-EMI’s $7.1 billion in 1995 revenue by sector:

EMI Music: 50.6%

Thorn: 36.7%

HMV: 11.6%

Other: 1.1%


U.S. music market:

WEA (Warner): 21.6%

Sony: 13.8%

PolyGram: 13.6%

BMG: 12.3%

UNI (MCA): 9.8%

CEMA (EMI): 9.7%

Other: 19.2%

Sources: Bloomberg Business News, company reports, SoundScan

Researched by JENNIFER OLDHAM / Los Angeles Times