Citigroup puts EMI Group up for auction
Citigroup Inc., which took over EMI Group in February in an overnight debt-for-equity swap, has officially put the 114-year-old British music company on the auction block.
The bank released a statement Monday laying out options for EMI, “including a possible sale, recapitalization or initial public offering of the company.”
The widely expected move puts in play the world’s fourth-largest record label, with an estimated $2.6 billion in annual revenue. EMI’s artist roster includes Coldplay, Katy Perry, Beastie Boys and Lady Antebellum. It also has the Pink Floyd and Beatles catalog, and the company’s publishing unit handles the songwriting rights for artists such as Kanye West, Jay-Z, Pink, Rihanna and Gorillaz.
Warner Music Group, whose board agreed in May to sell the company to industrialist Len Blavatnik for $3.3 billion, is expected to put in an aggressive bid for EMI. If sanctioned by European and U.S. antitrust regulators, such a union would leave the market with three dominant record labels of roughly equal size, down from five just a decade ago.
As with Warner, however, EMI could attract a number of unexpected bidders. The Warner sale was triggered in December when buyout firm Kohlberg Kravis Roberts & Co., partnering with German music company Bertelsmann, lobbed an unsolicited bid. A dozen bidders ended up in the fray in the ensuing four months, including Sony Music Entertainment, supermarket magnate Ron Burkle, Platinum Equity and Live Nation Entertainment.
Although some of Warner’s former suitors may make a run at EMI, several who were interested in Warner for its potential to merge with EMI and create a music powerhouse may now opt out.
EMI, which is popular in Europe and Japan, trails its rivals in U.S. market share. As of June 12, EMI had 8.8% of U.S. music sales this year, compared with Universal Music Group’s 29.5%, Sony’s 29.4% and Warner’s 19%, according to Nielsen SoundScan.
The company in December hired Alex Luke, former director of global music initiatives for Apple Inc.'s iTunes, to step up the company’s artist development efforts in the U.S.
EMI, which runs the Capitol Records studios in Los Angeles, operates a number of labels, including Angel, Astralwerks, Blue Note, Capitol, Capitol Latin, Capitol Records Nashville, EMI Classics, EMI CMG, EMI Records, EMI Records Nashville, Manhattan, Parlophone, Virgin Classics and Virgin Records.
The auction for EMI is unusual in that it is the second major music label to come on the market within a year, at a time when the industry is transitioning to a more digitally focused future.
“There are still people out there who think that this is a great and viable business,” said Nielsen analyst David Bakula, who pointed out that strong releases by Adele and Lady Gaga have contributed to a 3.1% jump in unit sales in the U.S. this year. “It’s an unprecedented time in the music industry, which is undergoing changes that lend the business to new ideas and new business models.”
EMI, privately held by Citigroup, posted positive earnings before depreciation and other write-offs in 2009 and 2010. But because former owner Terra Firma Capital Partners had borrowed $5.4 billion from Citigroup to buy the company in 2007, EMI recorded massive net losses from servicing its debt and restructuring the company.
Citigroup in February wrested control of EMI from Terra Firma, leaving intact the management and writing off 65% of the company’s loan. It currently has just under $1.9 billion in debt.
EMI, whose chief executive is Roger Faxon, cautioned that the current process might not result in a transaction. But few expect Citigroup to continue its role as a music label owner.
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