Emi Upbeat, Despite Possible Loss Of Blue-chip Status

London's premier share index, the FTSE 100, looks certain to eject EMI Group from the index at its quarterly review this month, as the dwindling price of media stocks has seen the major's market capitalization fall way short of the U.K.'s top 100 companies.

Unless it experiences a dramatic reversal in fortunes before the close of the London Stock Exchange on Tuesday (10), EMI will lose its blue-chip status for the first time since the creation of the index in 1984. The company will then drop into the FTSE 250 index.

The FTSE 100 index tracks the U.K.'s biggest publicly listed companies. But with EMI's market capitalization at about £1.3 billion ($2 billion) at the close of business Sept. 4, it is relegated to below the landmark 111th place in the list of Britain's biggest public companies: If a company falls below 111 on the review date, it is automatically ejected from the FTSE 100 index.

That situation was exacerbated Sept. 4, when JP Morgan analyst Sarah Simon cut her EMI target price from 250 pence to 175 pence, citing her belief that organic profit growth was limited in the recorded music market.

One broker believes EMI's loss of blue-chip status will drive the stock price even lower, leading to a possible hostile takeover. "EMI's highly profitable music-publishing division would be easy to split off," the source says. "A low share price leaves the company open to a possible takeover and asset strip by the likes of Bertelsmann. However, if EMI can show that it is making decent profits, it may reignite the interest of institutional fund managers—after all, it's better to have your money in a business with margins of 6% than have it sit in the bank, where it only makes 3%."

As the company is bound by stock-market rules, no one at EMI was available for comment. Instead, a spokesperson referred Billboard to chairman Eric Nicoli's words at the company's July annual meeting: "Our performance in the first quarter of this financial year is in line with our expectations for both recorded music and music publishing," he said. "Looking ahead to the rest of this financial year, we continue to expect to meet our revenue targets, achieve our planned cost savings, and deliver a substantial improvement in operating performance for both the half-year and the full year."

Ironically, EMI's stock-market performance is enduring its difficulties when parts of its business are enjoying record-breaking times. EMI Music Publishing is doing better than ever before, and London-based label Parlophone recently enjoyed its biggest-selling week, outside of an Apple Corp. (i.e., the Beatles) release.

Taking the accolade for that achievement is the new Coldplay album, A Rush of Blood to the Head, which scanned 274,000 over-the-counter sales in the U.K. alone during its first week, making it No. 1 on the U.K. album charts. The album also took the top spot in Australia, Canada, Denmark, Germany, Hong Kong, Iceland, Ireland, Italy, Norway, and Switzerland. In the U.S., 141,000 sales led it to debut at No. 5 on The Billboard 200.

And in a presentation to retailers Sept. 3 in London, EMI executives said they were hopeful of building on Coldplay's sales in the run-up to the end of the year, when its labels will also be releasing such product as the Rolling Stones' 40 Licks, best-ofs by David Bowie and Blondie, and Now! 53. The company will also be releasing a Kylie Minogue DVD featuring a bonus live album and a Gorillaz DVD—products that EMI Recorded Music U.K. & Ireland chairman/CEO Tony Wadsworth urged retailers to front-rack with music CDs rather than hide among movie DVDs.