Citi to call the tune on EMI future

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SaiGon GP English - 50 month(s) ago 3 readings

LONDON (AFP) – British music label EMI, home to a galaxy of stars including The Beatles, Coldplay and US pop starlet Katy Perry, faces an uncertain future after Citigroup seized control from its private equity owners.

The US bank took over EMI on Tuesday after agreeing to slash the music publisher's debt to £1.2 billion (1.4 billion euros, $1.9 billion) from £3.4 billion.

EMI, whose roster of artists also include Kylie Minogue, Lily Allen, Norah Jones and Robbie Williams, was bought by private equity firm Terra Firma for £4.2 billion in 2007.

Terra Firma's boss, British billionaire Guy Hands, helped finance the purchase with an enormous Citigroup loan of about £2.6 billion.

However, the deal was clinched before the credit crunch slammed markets and sparked the devastating global financial crisis, during which Citigroup was bailed out by the US government to the tune of billions of dollars.

EMI has welcomed news of the Citigroup takeover, saying it was an "an extremely positive step" that would help deliver success for the group that owns the rights to songs from The Beatles, Pink Floyd and Queen.

But industry watchers remain unsure whether Citigroup will seek a quick sale or aim to grow the trophy asset and recoup its losses.

Media reports suggest that potential buyers could include private equity group KKR, US record major Warner Music or rival label BMG, which is a unit of Japan's Sony Corp.

"I would imagine that Citi would love to unload it," said David Morrison, an analyst at trading group GFT, adding that the lender would want to do this "as soon as possible".

"After all, it's not the kind of business that they would be any good at running, while it would have value for the likes of Warner and BMG.

"On top of that, Citi -- like other investment banks -- could do with the money and given the strength of the general market, now looks like an excellent time to bail out," said Morrison.

The Financial Times reported that "several bidders" held informal talks with Citigroup. The business daily, citing people close to the bank, added that there was no bid deadline and it was not clear whether EMI would be broken up.

Atif Latif, director of trading at Guardian Stockbrokers, said the US lender would be in "no rush to sell" amid the promise of more investment.

"They have provided £2.6 billion of loans for the deal so they would be looking for a deal where they can recoup some of these losses," he told AFP.

"With the promise of more investment we think that they will look to sell it at more of a premium than it is currently worth."

At the same time, Terra Firma's boss is currently awaiting an appeal hearing after failed US legal action against Citigroup last year.

Hands had attempted to sue Citigroup, arguing that the bank had not informed him that a rival bidder had pulled out, and that this resulted in an inflated price. However, he lost the case.

"Hands feels that he was misrepresented and that his investors have lost funds on this deal as he had massively overpaid and was too highly leveraged for the deal," said Latif.

"Bear in mind that when EMI was taken over by Hands, he did not help the cause by saying that he did not think that running a music company was any different that running any other business.

"The concern is that the senior management now at EMI have been placed by Terra Firma so loyalty may be an issue."

Looking ahead, Terra Firma released a short statement to say that it was "pleased" that EMI's debt burden had been reduced.

The group's ownership of EMI has been marked by controversy, with some high-profile acts opting to leave, amid protests that a private equity firm lacked the experience to run a music label.

Radiohead departed in late 2007, followed by legendary rockers The Rolling Stones in 2008. Ex-Beatle Paul McCartney decided to part company last year.

Analyst Morrison argued that the Terra Firma deal had the appearance of a "vanity purchase".

"This is not a matter of being wise after the event -- the Terra Firma deal looked foolhardy at the time," he told AFP.

"Even discounting the financial crisis, the entertainment industry was -- and remains -- in a state of flux.

"In addition, paying up for talent that can down tools or 'dry up creatively' at the slightest provocation is a risk. It looked like a vanity purchase with the risk/reward of buying a football club," Morrison said.

Despite the rapid growth of legal music downloading, the global music industry is also still struggling to combat Internet music piracy and plunging CD sales.

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