Bits & Pieces: Just when you thought it was safe to buy EMI, Legal-Eagle Don Henley & Bug Music still for sale
Guy Hands; Looking for answers
Another potential wrinkle appeared in the current auction of EMI this week, with the reappearance of Guy Hands, who is taking legal action to recover documents explaining the basis for Citigroup’s takeover of the music company in February of this year. According to initial reports, Citi tapped PricewaterhouseCoopers to handle administration of the takeover process, and Terra Firma is now taking action against both parties after previous unsuccessful attempts to acquire a satisfactory explanation. After Hand’s courtroom defeat at the end of 2010, it was believed that the EMI takeover would not come until closer to summer of this year, given the debt-payment schedule, however the bank took action in February, after rumors in January that they were already shopping for buyers. So far Citi’s response to the initial sentiment that this new twist could cause a serious problem for their auction of the music group, was to indemnify all bidders currently pursuing EMI, according to the Financial Times. Some insiders are wondering if this isn’t just more posturing from Hands in an attempt to strike a blow against his former lender, particularly after recent widespread speculation that EMI could fetch a much higher price than originally believed. Considering the scuttlebutt earlier this year was that the abrupt takeover came as a result of threats from his own investors, one in particular, the answer might be yes… This latest development surrounding the EMI auction, comes after talk that the looming copyright termination battle royale, is also effecting the bidding process, though most observers share that neither issue will likely have crippling outcomes… Meanwhile, continuing his rounds with the press as artist-spokesman for the copyright termination topic, Don Henley speaks to Rolling Stone about the copyright law, options that artists have and how the record companies are not going to take it lying down… And according to the New York Post, independent music pubco Bug Music is taking second-round bids from interested parties, including KKR-backed BMG Rights Management, Ole Music and Imagen among others…
06.29.11EMI Derby: Who Has the Inside Track… Pt. 1
Industry insiders have shared with us recently that they are putting Len Blavatnik’s Access Industries as the front-runner in the auction of EMI by Citigroup, which is expected to start in the coming weeks – and there’s plenty of good reason to bet that way. It’s been reported that Citi executives have already engaged in talks with the new Warner Music Group owner about a potential acquisition, Edgar Bronfman Jr. has long desired to merge Warner and EMI, and Citigroup chairman Dick Parsons ran Time Warner during a previous bid to merge the two companies. However, those in the know share that Warner isn’t the only suitor with ties to both Citi and EMI. More on that below… Many of the deep-pocketed bidders from the Warner Music auction are expected to enter the EMI derby, for either the recorded music unit, publishing or both, with regulatory issues as the most obvious concern for parties like Universal Music, Sony Music and now Access-owned WMG – all of them would have to shed assets in order to complete a deal. Meanwhile, private equity players would have an easier time making an acquisition, but the Terra Firma debacle may prove too cautionary for some who are interested… With all that, it’s BMG Rights Management that is on the tongues of insiders as one of the most well-positioned contenders, particularly with regard to EMI Music Publishing. The Bertelsmann and KKR-backed joint venture was deep in talks with Terra Firma to buy the publishing unit back in 2009, which would have relieved some of the debt that ultimately forced Guy Hands to turn the company over to Citigroup, and prior to that, KKR was in the running to acquire the entire EMI Music Group, before it ended up in the hands of Terra Firma… With relationships in place, and knowledge of the company before, during and after the Guy Hands era, it’s not hard to envision EMI publishing assets ending up in the already prodigious BMG Rights Management catalog, which would put the JV in position to rival Universal Music Publishing Group for the top spot in market share. This just five years after Bertelsmann sold BMG Music Publishing to Universal. But the story wouldn’t end there… Stay tuned.
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Happening: Warner Music Preparing for Bids, EMI Close Behind & Spotify Back in the $$ Mix
BMG RM's Hartwig Masuch; Who will they take first?
It’s being reported the Warner Music Group is preparing to receive offers this week from a list of up to 20 bidders, the latest entry on the list of suitors is Russian businessman Len Blavatnik, who already owns a minority stake in Warner/Chappell Music. The KKR-backed BMG Rights Management venture is expected to be among bidders for WMG’s publishing division, having apparently tapped multiple banks to advise and provide financing. Though the move could also be to prepare bidding for the Citigroup-owned EMI Music, the other major music group currently on the block. Or maybe it’s both… EMI group CEO Roger Faxon continues his media tour, with a piece this week in The Guardian where he explains the pitfalls of splitting up the company’s recording and publishing divisions. Meanwhile, former owner Guy Hands expresses disappointment over losing EMI, his highest profile investment, to Citigroup… Details coming out over the weekend have Spotify getting a large amount of new financing in the range of $100million from Digital Sky Technologies (also backers of Facebook, Groupon and others), which would give the company a new valuation of around $1billion. If it seems like all that new money will just end up going to the labels in the U.S. in order to get off the ground (Spotify now has both Sony Music And EMI onboard), MediaMemo’s Peter Kafka says think again… And how would the new Apple content subscription service fees hinder music services like Spotify? A cryptic email from Steve Jobs this week has many questioning if Apple is changing its tune on fees applying to music services.
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More EMI & WMG: Hands Won’t Give Up & Warner Racing to the Block
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.
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Even More EMI: Investor Forced Hands’ Early Turnover
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.
More EMI: Warner and KKR Still Leading the Pack? Could Guy Hands Still Be in the Mix?
Bidding starts at...
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?
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Fixing A Hole: Citigroup Takes Over EMI Music
Let the bidding begin
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….
01.26.11Wednesday Bits & Pieces: Is it Already the End of Digital Music or Just a New Beginning? More UMG-Sony Music Red Rover & more…
Which way is the river flowing?
Over the weekend The New York Times published what has become an annual gloom and doom report regarding the state of music sales, using the International Federation of the Phonographic Industry’s report as the guidepost. In addition to the continued slump in physical, the recap for 2010 concentrated on the plateauing of digital sales and “not a lot of progress” in digital after a decade. However as Evolver.fm points out, the piece focused heavily on the slowing at marketplaces like iTunes and Amazon, while paying less attention to revenue generated from newer services like Pandora, Spotify, YouTube, etc – which is not the same as digital sales. The IFPI’s report contains various points of optimism, like in the growth of mobile access to subscription services due to new technology and compatibility improvements, as well as the significant expansion in the customers of new “freemium” services… Elsewhere, a Financial Times piece this week adds to the growing reports of Doug Morris seeking an early exit from his contract with Universal Music Group owner Vivendi, although it’s still unclear if he will get released in time for a presumed takeover for Sony Music CEO Rolf Schmidt-Holtz, whose contract is up at the end of March. More red rover continues between UMG and Sony, as Lucian Grainge taps former Sony A&R executive Larry Jackson as EVP of the IGA family of labels…. Meanwhile Guy Hands reportedly will get a last chance to hang on to EMI Music, as Citigroup asks the Terra Firma boss to make an offer to keep control of the music company, which is thought to be valued around £1.6 billion.
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Wednesday Bits & Pieces: Guy Hands to Appeal EMI Ruling, Doug Morris Seeks Early UMG Exit & more…
Hands Appeals EMI Ruling
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.
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Monday Scuttlebutt: EMI Countdown, Hands in the Cookie Jar & KKR’s BMG Wants It All
Handing over to Citigroup?
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…
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