Warner to join forces with Barbarians for EMI break-up bid?

EMI may be the target of another leveraged buyout (because that went so brilliantly last time...)

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Last Updated: 29 Oct 2010

Some rare good news for poor old EMI? Just days after it announced the departure of CEO Elio Leoni-Sceti, reports suggest the US-based Warner Music is once again running the slide rule over the ailing UK record company - although this time it's apparently teamed up with private equity giant Kohlberg Kravis Roberts, of 'Barbarians at the Gate' fame. It's true that EMI needs some kind of saviour, as it struggles with rock-bottom morale and myriad financial problems. But is swapping one private equity owner for another really the answer?

The Sunday Times reports that KKR and Warner are in talks about a possible break-up bid for EMI: this would involve Warner getting its hands on EMI's recorded music division (which it's been eyeing lasciviously for years) and KKR getting its mitts on the music publishing arm. The theory is that current owner Terra Firma will try to flog EMI this summer to keep it out of the clutches of its lender Citigroup - although it may have to cut some kind of deal over its debt first (it needs to pay Citi £120m by June after breaching the terms of a loan agreement).

On the face of it, this might look like a case of 'out of the frying pan, into the fire' for EMI (much like football club Liverpool, which appears to want to resolve the myriad problems it's had with its US private equity owner by cutting a deal with... a US private equity firm). It's already struggling under the weight of the debts incurred when Terra Firma bought the business - so why should it fare any better following a secondary buyout?

Well, perhaps the best hope is that the two arms of the business are better off apart. The recorded music division bit would be run by a music specialist used to handling thin-skinned and flighty artists (competition authorities have previously blocked Warner's attempts to buy the division, but it seems to think this won't be a problem now). And the music publishing division, with its steady income streams (notably online - and PRS for Music said this weekend that royalties from online music sales soared 73% to £30m last year) is more of a natural cash cow for private equity to milk. Although EMI staff may find that Terra Firma were pussy cats compared to the notoriously hard-nosed KKR...

Still, we suppose you might argue that after the chaos of the last couple of years, any new owners could hardly do much worse...


In today's bulletin:
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FCUK offloads Farhi as part of restructure
Warner to join forces with Barbarians for EMI break-up bid?
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