Collapse of American deal leaves company exposed
With a potential sales and licensing deal between EMI Music and Universal Music Group off the table, execs at debt-wracked EMI are concocting a new business plan, seeking a cash infusion needed to meet a huge mid-June payment on its bank loan.A source familiar with recent discussions said Thursday that UMG had opened informal discussions with EMI late last month. These talks advanced by the beginning of this week into a proposed two-pronged deal between the two music companies. In the U.S., EMI would have outsourced its sales and distribution functions to UMG, while still retaining its own sales staff. In international territories, there would have been a separate agreement to license EMI’s current releases and catalog to Universal. The deal would have brought around $304 million to the coffers of EMI, which is scheduled to make a payment of about $183 million in June to Citigroup, the lender in equity firm Terra Firma Investments’ 2007 purchase of the company. However, according to the source, EMI walked away from the deal early Wednesday, finding not enough value in the agreement for the firm or its acts. An EMI spokeswoman had no comment. A spokesman for UMG could not be reached for comment; as recently as Tuesday, Reuters reported that a spokesman denied Universal was in talks with EMI. Sony Music Entertainment also approached EMI to explore a possible pact last weekend, according to the source, but the talks never moved past the informal stage. A Sony spokesman declined to comment. EMI chief executive officer Charles Allen and the company’s top brass will now attempt to formulate a new plan to keep the fiscal wolf from the door. Former ITV exec Allen, previously EMI’s non-executive chairman, took over as chief executive after his predecessor Elio Leoni-Sceti abruptly exited the company in March (Daily Variety, March 10). Should EMI fail to pay its note, Citigroup could seize control of the company and sell it, either as a whole or its label and publishing sides could be sold separately. Speculation has focused on Warner Music Group – which has made several unsuccessful attempts to merge with EMI over the years – as the leading potential buyer, but the company’s strong roster and deep catalog would attract the other majors and firms outside the music business as well. Terra Firm purchased EMI for about $6 billion in late 2007, just before the crash of the credit market. Since then, amid an ever-softening market for music, the company has struggled to secure the big financing it needs to meet its Citigroup bank covenants. In December, Terra Firma sued Citigroup Inc., claiming it paid a “fraudulently inflated price” for EMI’s label and music publishing interests as a result of misrepresentations made by the lender (Daily Variety, Dec. 14). The action is set for trial in October in New York. Ironically, EMI’s cash crunch persists as the company’s commercial fortunes are on the rise. Though still No. 4 among the majors, it currently boasts nearly 12.2% of current album market share, up nearly five points from the same time last year, according to Nielsen SoundScan data for 2010 sales through March 28. First-quarter releases by country trio Lady Antebellum and U.K. “virtual band” Gorillaz have reaped strong sales, and EMI’s Capitol imprint is distributing the new “Now 33” hits compilation, which entered the U.S. chart at No. 3 this week. The Associated Press contributed to this report.