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The end of an era – EMI assets sold to major label rivals

By | Published on Saturday 12 November 2011


After months of negotiations, and years of speculation, the immediate future of EMI has been confirmed, regulatory hurdles permitting. Universal Music will buy EMI’s record labels for $1.9 billion (£1.2 billion), while a consortium led by Sony Corp’s Sony/ATV business will acquire the EMI publishing catalogues for $2.2 billion (£1.35 billion). It brings to an end a long chapter of uncertainty in EMI’s history.

In 2007, the last remaining British music major, then a plc listed in London, was bought by private equity group Terra Firma in an audacious multi-billion dollar deal.

Terra Firma and its top man Guy Hands immediately instigated dramatic cuts, correctly identifying many of the problems with the ailing music company, though struggling to come up with killer solutions. A cull of senior execs and A&Rs alienated artists in contract to the major, and many new recruits from outside the music business – brought in to reinvent the company – left after short tenures.

Though, despite the stresses and dramas, a leaner, fitter EMI emerged from the quagmire, seemingly able to meet the challenge of pursuing more innovative relationships with key artists, while selling its services to the growing number of other artists looking to go it alone. Once the long term boss of EMI Music Publishing, Roger Faxon, was put in charge of the whole group, things started to look good.

Except that by that point there were already new dramas behind the scenes, because the scheme under which Terra Firma had bought EMI in the first place was rapidly untangling. It had been an ambitious acquisition enabled by a multi-billion loan from one bank – Citigroup. It was a deal of its era, made impossible once the credit markets crashed and Citi was unable to sell on any of the debt.

The bank started getting tough, so that when EMI couldn’t meet the ambitious loan terms Terra Firma had saddled it with, Citi execs refused to compromise. Terra Firma repeatedly had to pump millions more into EMI to keep it on the right side of covenant tests, and the patience of Terra Firma’s backers started to be tested.

Nevertheless, somehow Hands managed to raise just enough money in summer 2010 to keep Citi from the door. We expected another crunch moment to come in spring 2011, but before that could happen Citigroup pounced, the holding company through which Terra Firma owned EMI declared itself unable to meet loan terms and the bank repossessed. Rumour has it Hands, who had already sued Citi over the advice the bank gave him ahead of his EMI acquisition, is now considering legal action over the way the company was seized from him.

Citi admitted immediately it had no intent of keeping hold of EMI in the long term, though it was early summer before formal takeover offers were being accepted. Faxon was keen to keep the company together as a going concern, telling every business journalist who would listen that EMI was strongest if its recordings and publishing businesses – traditional autonomous enterprises – could be more closely integrated. Citi initially indicated it would try to sell the company to one buyer, though with a desire to maximise return to cover pass losses made on the Terra Firma deal, it became clear a split sale was much more likely.

Prior to Terra Firma’s 2007 takeover everyone had expected Warner Music to merge with EMI, to create a super-major on par with Universal and Sony. Even before Citi repossessed, everyone thought Warner would still be a key bidder if and when EMI went back on the block, though the US major’s owners were unlikely to be able to afford the whole company. Consensus was Warner would bid for the labels, leaving the publishing catalogues for the acquisitive ‘version two’ BMG, which had access to big money via its co-owner KKR.

But when Warner Music itself was then put up for sale in early 2011, many were surprised by how many people put in bids, leading to speculation that there would be a lot more competition for EMI as well. Though, in the end, there were only ever four serious bidders once Citigroup opened talks on an EMI sale – the expected Warner Music (now a little richer thanks to its new owners) and BMG (still acquisitive), plus the other big two existing players in music, Universal and Sony, both of whom seemed confident they could cross the regulatory hurdles that would have likely blocked such deals ten years ago on competition grounds.

On the publishing side BMG and Sony were equal favourites, though the latter was relying on finding partners to help fund the bid. On recordings, Universal, the surprise entrant in the race, got ahead at first, but then Warner put in a higher bid, so Universal stepped down, until Warner likewise withdrew its offer, concerned about EMI’s pension liabilities. Allowing Universal to return to the negotiating table.

Bringing us to yesterday – the announcement that Universal and Sony/ATV will get EMI Music and EMI Music Publishing respectively. Both are likely to face regulator investigations, and pan-European indie labels body IMPALA has already pledged to fight both deals. But assuming that they do ultimately go through – albeit with possible remedies – what does this mean for the EMI name and legacy? Set to be absorbed by existing major players, the 80 year old British music firm will definitely cease to be British, and may ultimately cease to exist even in name.

Well and truly the end of an era.

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