Hugh Hendry, an investor with a major stake in music giant EMI, is violating one of the cardinal rules of the secretive hedge fund world: He’s speaking out as a cheerleader for Warner Music’s bid to take over EMI.
“Hedge funds are cloaked in secrecy, and I object to that,” Hendry, who runs Eclectica Asset Management, told The Post.
In a letter published yesterday in the Financial Times, Hendry, a major EMI shareholder, wrote: “We favor a combined EMI/Warner Music Group but would prefer Warner Music to be the acquirer, since EMI would probably seek to finance an excessive portion of the acquisition with equity.”
In recent months EMI and Warner have furtively sought to buy each other, but neither side seems willing to relinquish control. In early May, EMI bid $28.50 per share for Warner, an offer that was quickly rejected by Warner’s board.
Since then, Warner’s own overtures have twice been rebuffed by EMI – which itself has raised its offer to $31 per share.
While both sides agree on the merits of a merger – pointing to the more than $300 million in possible annual cost savings – neither seems willing to duplicate the 2004 deal between Sony and BMG, in which managers from both sides shared power.
Hendry is the first major investor on the EMI side to publicly take a stand. Warner, by contrast, is less vulnerable to shareholder unrest given that 75 percent of its shares are held by the consortium of investors, headed by Edgar Bronfman Jr., that bought the company from Time Warner in 2004.
“We would strongly back Edgar Bronfman as chairman/chief executive of a future combined entity,” Hendry wrote. “He and his private-equity associates have a strong record of creating shareholder value.”
Hendry said he owns a 2 percent stake in EMI, which he said is valued at about $64 million. He also owns a small stake in Warner that is worth about $23 million.
Hendry said one of his main gripes with the EMI side is that the company plans to fund a Warner acquisition by issuing new equity, rather than through debt financing. He said he discussed the issue with EMI management, but he said, “I didn’t think they were listening.”
In a statement, an EMI spokesperson said: “The vast majority of our shareholders are supportive of our actions and recognize that those actions are designed to maximize value.”
EMI is said to have reached out to its top shareholders last week to discuss its takeover strategy but didn’t contact Hendry, who said he’s the “eighth or ninth biggest shareholder.”
However, sources close to EMI said that as of yesterday Hendry was not among the company’s 10 largest investors.
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Bring it on
An influential shareholder in EMI is smashing protocol by publicly calling for a deal with Edgar Bronfman-led Warner Music.
Global market share*
Universal Music 25.5%
SonyBMG 21.5%
Indie labels 28.3%
24.7% Combined: EMI: 13.4%; WARNER: 11.3%
* Data for 2004
Source: IFPI