EMI Derby Ramps Up As It Winds Down
EMI auction nears finish line
Numerous recent reports have Citigroup closing a deal (or two) for the sale of EMI by the end of this week, including a New York Post piece today claiming that a fight for the recorded music arm is down to billionaires Len Blavatnik, whose Access Industries now owns Warner Music Group, and MacAndrews & Forbes Worldwide chairman Rob Perelman. On the publishing side, KKR and Bertelsmann-backed BMG Rights Management is being called the clear frontrunner, though Sony still isn’t being completely counted out. New Bertelsmann CEO Thomas Rabe who is said to be making the rounds in New York this week, is very familiar with EMI, previously serving as Bertelsmann CFO since 2006 until his recent promotion, where he kicked the tires on the music group prior to Terra Firma’s acquisition of the company in 2007 and then again at EMI Music Publishing in 2009, in discussions that likely included Citi as well… As we mentioned back at the outset of summer, Warner Music and BMG all along have been the favorites to end up with EMI’s recorded music and publishing arms, though many other suitors entered the bidding fray as expected as well. Among the many questions we are hearing with regard to the likely new owners of EMI, is the fate of current executives on both sides following a deal – including EMI Group CEO Roger Faxon, WMG’s Edgar Bronfman Jr., Capitol & Virgin NA label prexy Dan McCarroll, EMI Music Publishing’s Big Jon Platt, BMG’s Hartwig Masuch and Laurent Hubert and many others… Stay tuned.
09.8.11Bits & 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…
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BMG Rights Management + EMI & the ‘Big Three’ Era… Pt. 2
EMI; another brick in the wall?
The sale of EMI Music Publishing to BMG Rights Management would be by far the largest investment for the Bertelsmann and KKR-backed venture, and would more than triple the current catalog of over 300,000 copyrights. It’s a catalog the JV has amassed in less than two years, through a series of acquisitions that include Cherry Lane Music, Adage IV, Stage Three Music, Evergreen Copyrights and Chrysalis Music, along with a handful of other international catalogs and pubcos. The speed in which BMG RM has climbed to the spot of fifth largest publisher in the world is striking, but only part of the story when looking at their catalog purchases. What’s more interesting to some insiders are the subplots and what they could signal for the future. Let’s step back and take a closer look… One of the most impressive and significant music publishing constructions in recent decades was that of Dreamworks Music Publishing, a catalog that was assembled under the guidance of veteran publisher Chuck Kaye. It included works from artists such as The Byrds, John Denver, Jimmy Eat World and Lifehouse among others, along with hit titles like “Disco Inferno” and “Take Me Home, Country Roads”. The catalog journeyed from one home to another throughout the 2000’s following the sale of the Dreamworks recorded music division to Universal Music in 2003. The catalog was first sold for $50 million to Dimensional Music Publishing in 2004, a newly created arm of JDS Capitol Management (who also owns eMusic and The Orchard), in a deal which is seen as seminal in the recent trend of venture capital investments in music publishing assets. However, Dimensional publishing’s run was short-lived, selling its assets less than three years later to First State Media Group, a new fund whose publishing entity operated as S1 Songs. Then again in under three years time, in early 2010 - after its own stint on the block almost being bought by then EMI owner Terra Firma – Chrysalis Music acquired First State Media and S1 Songs for $16.5 million, in a deal that included the Wind-Up catalog and of course the original 25,000 Dreamworks copyrights. And in November of last year, less than one year later, Chrysalis announced it was being bought by BMG RM, adding another 100,000 works to the JV’s catalog, in a deal valued at $169 million… So with a major addition like EMI’s publishing assets, what would the future hold? Particularly taking into account the consolidation happening within the ranks of the companies they’ve already acquired. On track to double their revenues by 2015, will the trend continue, with EMI (which has undergone significant cost-cutting of its own recently) as the final piece in a KKR and Bertelsmann plan to build the world’s largest publishing company and flip it? The common belief in many circles is that the industry is headed to a new era of the ‘Big Three’, and as such, none of the majors left will be able to afford leaving such valuable publishing assets outside of their control. It’s going to get interesting… Tune in tomorrow as we break a new big publishing deal currently in play.
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EMI 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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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.
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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Happening: Pink Floyd Re-Ups with EMI & LimeWire Won’t Go Quietly
Trying to Put its Own Squeeze on Labels
A couple of 2010’s most-followed music industry stories have headlines rolling out in the first week of the new year… Continuing with checkmarks in the positive column for EMI, is the announcement of a new 5-year deal with Pink Floyd, which also effectively ends the legal dispute between the band and label. Last year the band took action against its longtime label over the a-la-carte digital sale of their songs and online royalty payment calculations. While keeping the iconic group on the roster is another coup for new group chief Roger Faxon, and a reversal in the trend of big-name acts exiting their longtime relationships with EMI in recent years, the move can be seen as primarily an effort to retain as much value as possible in the event of a sale by debt-embroiled owner Terra Firma, which most still believe is likely… LimeWire has been busy dealing with the fallout of a recent final defeat in its lengthy legal battles, and yesterday The Hollywood Reporter legal blog posted details about the latest turn in the ongoing saga. Ahead of a final looming trial, which will determine the damages owed by the file-sharing site, lawyers for LimeWire are now attempting to force third-party licensees, so far only Amazon.com it seems, to turn over documents, including contracts, royalty payments and internal company communications relating to agreements with the labels. The judge in the case has already ordered record companies to turn over their information about royalty payments relating to alleged infringed upon works. This isn’t sufficient according to LimeWire’s attorneys. So far Amazon has not complied with the request, and it’s unclear if other licensees like Apple have also received similar requests. What is clear however, is that LimeWire is not going down quietly, and will do its best to shed light on licensing agreements heretofore kept in the dark.
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