This morning it was announced that Warner Music Group is being acquired by Access Industries and owner Len Blavatnik (who previously had a 2% ownership stake in the company), with an offer of $8.25 that values the company at $3.3 billion. Blavatnik beat out a handful of rival bidders, with the most competition coming from Platinum Equity/Gores Group (read this post on the New York Times DealBook blog for a look at how Warners’ investors made out on the deal)… No sooner than the news broke, did attention turn to Citigroup‘s upcoming EMI auction, which many are speculating will include a heavy play by Blavatnik in an effort to combine the two music groups. It’s believed that with Access taking over WMG, current CEO Edgar Bronfman Jr. will remain safely installed in the company, and will play a key role in any attempt to buy EMI – speculation of a Warner/Chappell Publishing sale in order to help finance such an acquisition, and remove one of many probably regulatory hurdles, continues. However on the heels of WMG’s announcement, the Independent Music Companies Association (IMPALA) has already made comments warning that any attempt to combine EMI with Warners would be met with investigative scrutiny by the European Commission – IMPALA previously challenged the Sony and Bertelsmann merger in 2006… Stay tuned.
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Bits & Pieces: Warner Closes Final Round – Will the Victor Go the EMI Spoils Too?, Radio Staff Grows at Q Prime & more…
The final round in the Warner Music auction closed yesterday, with two primary bidders said to be vying for the company, one being Len Blavatnik’s Access Industries and the other, a coalition of brothers Tom and Alec Gores, whose respective company’s are Platinum Equity and Gores Group – both suitors reportedly tendered bids around $3billion for the entirety of WMG. Attention has begun to drift to the looming sale of EMI by owner Citigroup, and the belief de-jour is that whomever ends up nabbing Warner Music, will also be aggressive in securing EMI as well. The result would likely be a cut and paste job between the various components of the two music groups. In another twist, The Telegraph reported yesterday that KKR-backed BMG Rights Management and Universal Music Group may be teaming up in an attempt to acquire either or both EMI and Warners, having put together a plan to carve up catalogues in an effort to avoid regulatory hurdles… Elsewhere, according to FMQB, Q Prime is expanding its promotion team, with an emphasis on bolstering the undertakings of its premier management operation, with a roster including Cage the Elephant, The Black Keys, Silversun Pickups, Snow Patrol, Muse and many others. Q Prime’s Mom + Pop Records, who has releases from Sleigh Bells, Metric, Freelance Whales among others, should also benefit from the increased staff. The additions include Trina Schaefer (formerly of Island Def Jam), Erin Gellert (formerly of Epic Records), Devin Rosevear, Chris Frank (formerly of Universal Motown) and Michael Fang (formerly of Red)… Meanwhile, the news of a nearly 25 million additional user accounts being compromised in the recent PlayStation Network breach (77 million were initially reported) smacks of the Sony BMG rootkit blunder (and ensuing lawsuits), and it can’t be good news for Sony Corp. CEO Howard Stringer, whose term has recently begun to be put in question more frequently… And for an interesting read about some of what labels are said to be demanding from cloud music, or locker, services (efforts from Amazon, Apple, Google and Spotify being the most widely discussed), check out the guest post from MP3.com and MP3Tunes founder Michael Robertson on TechCrunch.
[UPDATE - Bloomberg first reported yesterday that a last minute joint-offer for Warners was submitted by Sony/ATV Music Publishing and Ronald Perelman and Guggenheim Partners LLC. A winning bidder is expected to be announced on Friday.]
In his first public appearance since the turnover of EMI Music to Citigroup, Terra Firma‘s Guy Hands said he is considering buying EMI, according to a report in Bloomberg, but that it is a “question of price,” adding, “They are going to auction it, and we will see if they can get more for it than we offered.” Addressing the split of EMI’s two divisions, Hands declared, “You’ve really got to keep the two together so that you have the stability of publishing’s earnings versus the volatility of the recorded music division.” Following the bank’s takeover of the music company, much of the publicity has shifted to EMI CEO Roger Faxon, and his rumored stealth efforts to save the label, being credited with leading a behind the scenes effort without Hands’ knowledge. Others in the know share that the spin has been well orchestrated leading up to Citi taking control, to keep Faxon’s place at the table moving forward… Meanwhile, the New York Post reports that Warner Music Group is trying to beat Citigroup to the finish line, hoping to get a sale in place before EMI. Particularly in light of the presumed interest in selling off its publishing division Warner/Chappell before EMI Publishing, as it would be hard pressed to compete. Interested bidders named include Zomba founder Clive Calder, Russian investor Leonard Blavatnik, Universal Music, Sony Music, KKR and music publishing giant Imagem. While whether or not WMG backers Thomas H. Lee Partners, Bain Capital and Providence Equity Partners are looking to cash out or just unload WC is unclear, the article claims CEO Edgar Bronfman Jr. is anything but ready to get out of the music business.
Industry observers continue to ponder the timing of Citigroup‘s takeover of EMI this week. With Guy Hands seemingly set on exploring every nook and cranny to stump up more funds to keep control of the music company, and the next debt covenant test not scheduled until March 31st, the early turnover to the bank has many perplexed. Having proved to be intent on dragging out the affair until the bitter end, with his legal action against Citi last fall and a delayed appeal of the ruling less than a month ago, what changed Hands mind? Those in the know share that a single investor with a large stake in EMI forced Terra Firma‘s hand by threatening to sell his interest in the company if it wasn’t immediately turned over to the lender. Such a move would have surely created an even messier process and further lowered the value… Stay tuned.
The announcement of Citigroup taking over EMI yesterday hasn’t changed the variety of sale scenarios being floated, but has certainly intensified speculation. A myriad of potential regulatory issues remain at the forefront of all conversation, but the smart money continues to be on either Warner Music Group or KKR-backed BMG making bids for either parts or the whole. Other subplots include KKR buying both the recorded music and publishing arms, only to sell off one at a later date. Comments published by Music Week from a former member of EMI senior management indicate that KKR is the frontrunner, who has had an eye on the publishing division for years, adding that the private equity group has “the firepower and it is obvious and clean. Although I think other private equity will obviously be interested.” Who else might be interested? The field could still include other major label groups Sony Music and Universal Music Group, while in the more unlikely column are companies like Apple and Google. Even Guy Hands could still be in the running to take back the music company, though he would likely scratch, as The Guardian points out, the odds are against a bank financing Hands after the first go-around. Meanwhile the New York Post reports that Hands was desperately trying to raise funds up to the last minute from investors including Simon Cowell‘s brother. Others are wondering why the early turnover to Citi? Has the bank already lined up a buyer?
It was a question of when not if, and today comes the news that U.S. bank Citigroup has taken control of EMI Music from previous owner Terra Firma. In the deal, which sees Guy Hands relinquishing command of his firm’s most high-profile acquisition and the end of a dragged-out final act, EMI’s debt has been cut 65 percent, from 3.4 billion pounds to 1.2 billion pounds, and leaves current management, including CEO Roger Faxon, in place. The questions now turn to who will buy EMI, will Citi break up the recorded music and publishing divisions, how quickly will it go down and what effects will new ownership have in the mean time? For more coverage head here, here or here….
Originally it was believed that Terra Firma would not appeal the ruling in Guy Hands‘ trial over EMI against lender Citigroup handed down last year, however it was announced by the private equity firm yesterday that a notice of appeal was indeed filed. Details as to what specific rulings are being appealed were not released… Reports of an imminent sale of EMI, as soon as four to six weeks from now, are being denied by both Citigroup and Terra Firma according to information shared with Music Week, representatives from both saying that formal action won’t be taken until March… Elseswhere, Doug Morris is reportedly in talks with Universal Music Group owner Vivendi SA to arrange an early exit from his contract as chairman. Presumably the expedited departure is being sought in order to join Sony Music Entertainment. Rumors persist that Morris is the likely candidate to replace outgoing Sony Music CEO Rolf Schmidt-Holtz, whose contract is up in March… And Mike Elizondo joins Warner Bros. Records as a staff producer and Senior VP of A&R, a position previously held by Rob Cavallo.
Less than a month ago, reports were indicating that a deal might see EMI change hands from Terra Firma to lender Citigroup before Christmas, a result of negotiations following Guy Hands courtroom defeat – seen by most as a last ditch effort to maintain control of the music company. Still yet to happen, reports over the weekend are indicating that it may only be a matter of weeks before Hands relinquishes control of EMI to Citi, who is rumored to already be lining up potential suitors for both the recorded music and publishing divisions. In what some see as further corroboration is the disclosure of a £12m dividend taken by Hands last year, which is an amount five times the company’s after-tax profits, though also less than a quarter of the personal funds he told the New York court he had put into EMI… Who is the most likely to bid on EMI if Citi takes control? The Guardian reports that just last Friday it was being heavily rumored that the recorded music arm would be quickly sold by Citi to Warner Music Group, while the publishing would be acquired by KKR‘s BMG Rights Management. Though further reports this morning reveal that BMG RM could be interested in both arms of EMI, but not the production or distribution sides. If so, this could create a scenario that harkens back to talks held by EMI with rivals Sony and Universal last year, exploring the option of raising funds by licensing its catalogue for distribution. Depending on how it goes down, everyone could be in on this, one way or another…
2010 is speeding to a halt in the coming weeks and there’s no shortage of hubbub within the industry, as a number of big changes are looming on the heel of a year already fraught with tumult. Just last week came confirmation of Barry Weiss‘s rumored departure from Sony Music to take a top level position within Lucian Grainge‘s new blueprint for Universal Music Group, with all signs indicating that he will act as Grainge’s primary lieutenant on the East Coast while the new UMG chief resides in Los Angeles… The news of Weiss’s move was followed, almost immediately, by buzz that Doug Morris is now the likely shoe-in for the top spot at Sony, taking the place of outgoing Rolf Schmidt-Holtz. Recent times have seen bigger problems at Sony than Coca-Cola coming through the faucets, leaving many to wonder if the veteran executive could help turn around the struggling operation… And reports over the weekend are indicating that EMI Music might be headed for a takeover by Citigroup before the end of the year – a result of Guy Hands courtroom defeat and being stonewalled by investors in his recent fundraising efforts… It all leads to an outlook filled with questions and ripe with speculation. Stay tuned…
In the wake of a courtroom defeat for Guy Hands and Terra Firma in the legal action brought against Citigroup, all talk has turned to the fate of EMI. With the likelihood of more investors stumping up funds to keep the company in control of its current owners slim, and a dept-for-equity swap with Citi or even licensing content to another major music group, an avenue that was explored previously, exist in the realm of possibility, almost all signs indicate that one way or another the music company will fall into new hands (no pun intended). The list of suitors currently being thrown around includes the usual suspects who have had an eye on EMI’s recorded and publishing sectors, such as BMG Rights Management, Warner Music Group and Sony/ATV. But a look at executive movement within EMI over the past months seems to indicate that a sale or break up of the company may have been a foregone conclusion. Back in June Roger Faxon was named Group Chief Executive, moving him over from his longtime leadership at EMI Music Publishing, and soon after executive house cleaning began with Faxon ultimately tapping Dan McCarroll to take the reigns as prexy of Capitol & Virgin Label Group just last month – McCarroll was also plucked from EMI’s pubco where he was previously EVP of creative. And last week saw the news of Rob Stevenson‘s exit from the label, after being installed as President of Virgin in 2008 under now departed Nick Gatfield. Names of possible replacements being rumored include more execs already planted within the EMI structure. So are all the internal moves simply a reversal in the earlier unsuccessful practice under Hands to bring in outsiders? Or as some are indicating, is it to minimize costs ahead of a sale and reduce the typically high expense of hiring outside for creative executive positions? Stay tuned…
[UPDATE: After just 4 1/2 hours of deliberation, the jury has ruled against Terra Firma in the case it brought against Citigroup, which could possibly force Hands to relinquish control of EMI to the bank...] Yesterday the jury in the trial between Terra Firma and Citigroup over the 2007 acquisition of EMI heard closing arguments from both sides. David Boies, attorney for Terra Firma, gave an impassioned speech to the eight remaining jurors, which lasted over two hours, essentially explaining that if it were true that Citi’s David Wormsley had not mislead Guy Hands into thinking there was a rival bid for the storied music company, then he of course wouldn’t have gone through with the auction purchase, saying “If they hadn’t believed Cerberus was bidding, if they didn’t believe there was an active auction, why would they have gone ahead and submitted a bid?”. Citi attorney Ted Wells gave a very matter-of-fact argument that his client never mislead Hands, and there was no concrete evidence provided during the trial to prove otherwise. The basis of his closing argument being that Hands was brash in thinking that he could turn “tin into gold” and that he only brought the case about because he was upset over his poor investment, saying of Hands, his “magic sauce didn’t work this time.”
This week is expected to be the last in the trial that has Guy Hands pitted again U.S. bank Citigroup, in the well publicized disputed over Terra Firma‘s 2007 acquisition of EMI. Hands received more bad news as proceedings resumed this week, with the Judge, who called the case a “cat-fight between two rich companies,” ruling that the jury will not be allowed to consider “punitive damages,” and it also looks unlikely that the Judge will allow the plaintiff to pursue “consequential damages” – the additional debt obligation funds that Hands and his investors dumped into EMI this past June. Citi lawyers have also sought to remove a juror from the panel, because her name appears in the credits for Michael Moore‘s film Capitalism: A Love Story under “special thanks” – there was not an immediate ruling on the request for removal. The jury is expected to start deliberations on Wednesday…
[*UPDATE: The juror in question Donna Gianell, was in fact removed from the trial by the Judge Rakoff on Tuesday evening, though the reason given was that she lied to the court about having a conversation about the case with other jurors in an elevator... Ted Wells, lead Citi attorney said of Moore's film “This movie is so insidious,” including “You got to have a verdict at the end of the day that people will respect.”]
[**UPDATE: New York Times DealBook talks to the dismissed juror]
Yesterday Judge Jed Rakoff, who is presiding over the Terra Firma case against Citigroup, ruled that he would not allow testimony from a Terra Firma witness to demonstrate a theory of “lost profits,” essentially cutting possible damages the investment firm is seeking by 1/4 of the original $8 billion sought – it was one of three theories the plaintiff’s team had based their claims for damages on. Guy Hands lawyer David Boies also withdrew another theory that Hand’s company, if victorious in the case, would receive compensation for being “locked in” to the EMI investment while its value fell, which could have been calculated in the amount of $2 billion. The prevailing angle now is that of “fair market” which potentially could see damages awarded in the same amount, though it hinges on how market value is calculated – of course this is all presuming a victory for Hands. Two of Terra Firma’s fund directors in the EMI investment also testified yesterday, recalling two separate occasions that would support the alleged phone conversations regarding the Cerberus bid.
Yesterday saw the end of Guy Hands testimony in New York City. Facing repeated questions about the lack of evidence proving his alleged phone conversations with Citigroup‘s David Wormsley took place, Hands stated that he “never kept notes. Even at university,” due to illegible handwriting from dyslexic and dyspraxic conditions… Wormsley also took the stand for the first time yesterday, though for only a short time, less than 30 minutes, primarily trying to establish his trustworthy standing with Hands and his firm, telling Terra Firma lead attorney David Boies “I would always be as truthful and honest as I could be.” Boies also provided a number of email exchanges that show Wormsley’s early focus on wooing Hands and Terra Firma, presumably in an effort to start the process of leading jurors on a path that ends with The Worm‘s lack of integrity as a trusted advisor to Hands being exposed. One such exchange had Wormsley writing in an email to another (now former) Citi executive, For reasons I won’t go into, we have to show big love to Terra Firma. To that end, it would be very helpful if you had an hour in London next week to sit down and meet with the Terra Firma team and hear their story... Today Wormsley’s testimony continued, with more phone calls and emails being brought to light – one of which was a call to Wormsley from a member of the EMI deal team relaying a conversation with Hands in which he disclosed Wormsley had tipped him that a bidding price for the music company at 2.4 pounds per share would be approved. Wormsley said he was “furious” about the call, and wanted Hands to send a “written confirmation” to the EMI team declaring that conversation had not happened – this came after testifying earlier that Hands had a reputation for making “low-ball offers.” Also during his time on the stand today, he stated that Citigroup did not act as an advisor to Terra Firma on the deal, and that a majority of his correspondence with Hands dealt with financing aspects. In another email that was revealed, sent to EMI’s Eric Nicoli hours before the bidding deadline, Wormsley indicated that he had told Hands not to “play games on price.”