WaTunes: EMI Chief Has to Raise Money in ‘Make or Break’ Dash
March 11 (Bloomberg) — Charles Allen, the new executive chairman of EMI Music, needs to raise money in a “make or break” dash, while stroking artists’ egos to prevent the loss- making music company from being taken over.
EMI Music, the U.K. recording company controlled by Guy Hands’s Terra Firma Capital Partners Ltd., said yesterday Chief Executive Officer Elio Leoni-Sceti will leave the company on March 31 and named Allen, currently its non-executive chairman, to assume the role of CEO.
Allen, 53, faces the immediate task of designing a business plan for the company as Hands prepares to convince Terra Firma investors to inject new capital to keep EMI afloat. Without the funding, the label may end up in the hands of creditor Citigroup Inc., which Hands is now suing, claiming the bank tricked him into buying EMI.
“There isn’t any more important task than raising money to meet covenants,” said Claire Enders, a former EMI executive and head of Enders Analysis. “This is a make or break dash. He also will have to be charming and reassure managers and musicians he is working to the best possible outcome without knowing what that outcome is.”
Pop groups Pink Floyd and Queen, which have been with EMI Music for about four decades, are in talks with other record companies to leave the label, according to two people familiar with their talks.
Allen has been non-executive chairman at EMI Music since January 2009, chairing its board and supporting the transformation of the business, the record company said in yesterday’s statement.
‘Focus on Creativity’
“I will support and guide the group’s strong team, keep EMI’s focus on creativity and superb artist and recording business, and deliver a digital platform,” Allen said in an e- mailed statement yesterday. “This is a great business — our task is to ensure it has a great future.”
Allen is the former CEO of ITV Plc, the U.K.’s biggest commercial broadcaster. He managed the formation of ITV through the merger of television companies Carlton Communications Plc and Granada Plc. As an advisor to Goldman Sachs Group, “he’s got more experience of dealing with bankers and City figures than Elio,” Enders said.
At ITV, Allen knew the actors and presenters “were an integral part of the business,” said Brigitte Trafford, a former corporate communications executive at the broadcaster, who worked closely with him. “He’d go to see them from time to time on set, on shows like the X Factor, Coronation Street and Emmerdale.”
Some of ITV’s biggest shows were commissioned during Allen’s tenure, Trafford said. “It’s where Simon Cowell chose to come after all.”
‘Plan B or Plan C’
Leoni-Sceti, a former cleaning-products executive who used to run the European unit of Reckitt Benckiser Plc, took over in July 2008, a year after Hands’s Terra Firma paid 4 billion pounds ($5.96 billion) for London-based EMI.
“It’s really quite clear that EMI is switching to Plan B or even Plan C,” Mark Mulligan, a music industry analyst at Forrester Research Inc. in London. “Digital revenues have not come anywhere close to offsetting CD sales, and coupled with the perilous financial state they find themselves in, it’s clear they have had to have a rethink.”
EMI, home to the Beatles, last month posted a 1.5 billion- pound annual loss and said its liabilities exceeded assets by 408 million pounds as of March 31, 2009. Terra Firma has asked EMI for the new business plan and needs the approval of 75 percent of investors to put more capital in by the end of June.
In a letter to Hands in October, which was part of court documents filed Feb. 4 in New York, Leoni-Sceti wrote that morale at the company had reached a low and that artists were questioning whether to stay because of negative press attention focused on EMI’s financial circumstances.
Allen faces an “extreme” job that is “not for the faint hearted” as “EMI is in suspended animation until it knows if it can go forward again,” Enders said.
Speculation that Warner Music Group will bid for the U.K. music company has increased. Should EMI breach debt covenants, Citigroup could take control of the company and sell it to Warner Music. New York-based Warner Music made way for Hands to buy EMI after abandoning a takeover in July 2007. On Feb. 9, Warner Music Chief Executive Officer Edgar Bronfman Jr. said regulatory hurdles shouldn’t prevent his company, the world’s third-largest record label, from buying EMI.
“Allen is going to focus on keeping the company at Terra Firma, there’s still value to be fought for,” Enders said. “If they don’t succeed, Citigroup will take it over.”
Peter Hewer, a spokesman for Citigroup at Tulchan Communications, declined to comment.
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