EMI sale talks heat up as Citigroup plays bidders off each other

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Negotiations are heating up between Citigroup, the bank that owns EMI Group, and the companies that want to buy the music giant’s assets, which include a catalog of 1.4 million songs and recording contracts with a number of chart-topping bands.

The bidders -- Sony Corp., BMG Chrysalis, Universal Music Group and Warner Music Group -- are positioning their best offers in what appears to be the final rounds of negotiations, according to several executives familiar with the talks.

Like a high-stakes game of musical chairs, the four companies are warily eyeing one another as they circle around the two major components of EMI that are up for sale: the recorded music division that represents major artists such as Coldplay and Norah Jones, and the less glamorous but more profitable publishing division.

Squaring up for the recorded music assets are Universal and Warner. Sony and BMG are vying for EMI’s publishing business. In total, EMI could fetch more than $3 billion.


But a number of factors have held up the deal since bidders were asked to put in their proposals on Oct. 5. The biggest snag involves EMI’s pension fund obligations to its 21,000 employees, the vast majority of whom work on the recorded music side of the business.

In particular, Citigroup and potential buyers have disagreed over how much money would be required to fulfill the company’s pension obligations. Estimates differ dramatically, between $200 million to $600 million, according to several executives who declined to be named, citing the confidentiality of the discussions.

Universal Music, which bid $1.2 billion in cash for EMI’s recorded music division, has proposed that the bank shoulder at least some of the costs for the pension. Warner Music offered to take full responsibility for the pension but would give Citigroup less cash -- about $1 billion, according to people knowledgeable about the talks.

Meanwhile, the sale of EMI’s publishing business is also heating up. Earlier talks about Sony’s difficulties securing $2 billion in financing appear to be exaggerated, as the Japanese media giant is now in deep discussions with Citigroup. BMG, once assumed to be the winner, is also in active negotiations. Each has bid about $2 billion.

Although EMI’s two divisions are to be sold separately, the pension fund covers both entities, and Citigroup wants it to be resolved before either part can change hands.

The New York bank could still decide at the last moment to pull EMI off the auction block or declare a rest interval if it can’t whip deals into place, several people cautioned.


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-- Alex Pham