Wall Street Journal:
EMI Group Ltd. has held preliminary talks to license its music in North America to rival record labels, a move that comes as private-equity owners seek to avoid debt default that could soon put the troubled music company in the hands of lender Citigroup Inc., people close to the matter said.
EMI, which was purchased by private-equity group Terra Firma Capital Partners Ltd. in 2007, has been shopping a five-year licensing deal of its catalogue to rival music companies, including Warner Music Group Corp., Vivendi SA’s Universal Music Group and Sony Corp.‘s Sony Music, these people said.
Under such an agreement, sales and distribution of music by artists such as the Beatles and Pink Floyd would be handled by a rival music company. A deal could bring in up to £100 million ($150.1 million) per year for EMI, one person close to the matter said Sunday.
The talks are at a very preliminary stage and it is far from certain whether such an arrangement would help Terra Firma accomplish its aim to stave off a default on its debt to Citigroup. In the coming months, Terra Firma must raise Stg120 million to avoid a default or risk losing control of EMI to Citigroup, which is owed more than Stg3 billion. Other obstacles are the time scale of such a deal and possibly antitrust issues. Any such deal would have to be approved by Citigroup under the provisions of the secure loan that financed the leveraged buyout. Shares in EMI CDS spreads for EMI are around 28 bps tighter at the 1,071 bps level.
Terra Firma, EMI’s owner, believes it can raise £400m from such a deal. Guy Hands, Terra Firma’s boss, calculates this would be enough to stave off a looming takeover by its lender, Citigroup. It would also mean Terra Firma could abandon plans to tap investors for another £120m. Without the extra cash, Citi, which Hands is suing for allegedly misleading him over the sale of EMI in 2007, could take control of the business on June 14.
The back catalogue contributes virtually all of the earnings at the company’s recorded music division, and up to £100m a year in North America alone. It is separate from EMI’s music publishing arm, which owns the rights to the songs themselves but not their recordings.
Talks on a deal began in recent weeks with Universal Music, but have since moved on to include Sony and Warner Music. Sources say they are keen, but would prefer a longer licence period.
“They are not quite selling the family jewels — just taking them to the pawn shop,” said one source.