A game of chicken is starting to hurt EMI‘s ability to attract talent. Sources said that artists have become wary of signing with the music company because of the battle between private-equity firm Terra Firma and Citigroup over restructuring EMI‘s debt….According to sources inside and outside EMI, musicians are concerned that the company doesn’t have the money to properly market their material—most of the cash flow EMI generates is being used to service $4 billion in debt held by Citigroup….said one source at the label: “To the extent that they can’t put money behind records, that makes new signings all the more difficult.”…Another red flag for artists is the high executive turnover rate at EMI. Guy Hands, the CEO of Terra Firma, has replaced 80 of EMI‘s top 100 executives since taking over the label in 2007. Terra Firma itself at one point had as many as 40 executives at EMI, though that number is now down to 10…Indeed, as music industry outsiders, Hands and EMI boss Elio Leoni-Sceti are seen as liabilities themselves…
Terra Firma Capital Partners Ltd. and Citigroup Inc. (NYSE:C) remain deadlocked about the capitalization of EMI Group Ltd. But at least one professional observer expects the standoff to end with a shove that pushes the London-based music company into the welcoming arms of Warner Music Group Corp….Richard Greenfield, an analyst with Pali Capital LLC, posited just such an outcome in a Tuesday research update, citing what appear to be inexorable forces….The bank rejected the offer, leaving Greenfield to conclude “the best way for Citigroup to maximize the value of the debt it holds in EMI is to push for a break-up of the company, selling EMI‘s recorded music division to Warner Music and either leaving Terra Firma with EMI‘s music publishing arm or auctioning the asset to another bidder.”
Digital Music News:
One option is to simply liquidate. Pali Research analyst Richard Greenfield recently recommended that course of action in a note issued Tuesday. “We continue to believe the best way for Citigroup to maximize the value of the debt it holds in EMI is to push for a break-up of the company, selling EMI‘s recorded music division to Warner Music and either leaving Terra Firma with EMI‘s music publishing arm or auctioning the asset to another bidder,” Greenfield relayed. …Over the next few months, Terra is likely to meet its covenants, thanks partly to Beatles reissues and licensing initiatives. Just recently, the company was described as ‘barely’ meeting its financial deadlines by one well-placed executive, thanks partly to equity injections by Terra.