Citi to face the music as EMI deadline approaches

EMI owner Citigroup is gearing up to sell the record label it acquired in such unfortunate circumstances. Given market turbulence, is a deal doomed from the start?

by Emma Haslett
Last Updated: 21 Sep 2012
Poor EMI: like an unwanted puppy, the music label has spent the past few years shuffling dejectedly from home to home, finally coming to rest in the hands of Citigroup, the bank which backed its ill-fated buy-out by Guy Hands’ Terra Firma. But Citi is a cruel master, and has set a deadline of this week for prospective buyers to put in their bids for the label. The latest rumoured to be vying for control of the business is Ronald Perelman, the billionaire buy-out investor (and, topically enough, drummer), who is now said to be jostling with the world’s four biggest music companies to get his hands on EMI. Although don’t expect it to be restored to its former glory.

Apparently, Citi reckons it might be able to squeeze as much as $4bn (£2.6bn) out of a prospective buyer – although chances are it won’t be quite that much. The idea, though, is that it’s going to split EMI into two businesses – on the one hand, its recorded music business, which it’s apparently expecting to get offers of between $1.1bn and $1.5bn for; and its music publishing arm, which Citi hopes to get $2bn to $2.5bn for. That’s still not quite as much as the £4.2bn (currently worth $6.6bn, just to give it a bit of context) Hands et al paid for it – but it’s still quite a lot more than EMI’s valuation when Citi took control of the firm back in February, when it had to write off most of its loans, leaving it with just £300m in cash, and a not insignificant debt of £1.2bn.

Naturally, that’s put off some investors: according to ‘sources close to the deal’, private equity investors are currently a lot less interested than they had been. Although the likes of Warner Music, BMG, Sony and Universal are all still in the running to buy up various bits of the company. Apparently Warner is still trying to decide whether to go the whole hog, or just for the recorded music arm, while BMG (which is, after all, a publishing venture) is similarly unsure as to whether or not it should bid for the entire firm, or just bits of it. Either way, Perelman might just have the edge, simply because he won’t face the same competition hurdles record companies might.   

Of course, the other big issue Citi faces in getting the auction off the ground is banks, which, given the current unpredictable state of the markets, are decidedly skittish about the prospects of having to lend any money at the moment – let alone to back the buy-out of a company with £1.2bn worth of debt. Those ever-present sources close to the deal say two banks have already decided against backing an EMI buyout, which could make getting rid of it more difficult for Citi. Let’s hope others are marching to a different drum...

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