WaTunes: Struggling EMI seeks to strike distribution deal with Sony

April 4, 2010 at 8:26 pm Leave a comment

Source: Guardian

Sony Music is ready to strike a deal with EMI to win the distribution rights to the British music company's back catalogue in North and South America, according to industry executives.

Talks between Sony's finance director, Kevin Kelleher, and EMI's executive chairman, Charles Allen, could begin in May if advisers working for the two firms can stitch together an outline agreement over the next few weeks.

The disclosure comes after last week's failure by EMI to forge an accordwith Universal that could have raised vitally needed funds as a June deadline approaches when the company must plug a £100m-plus funding gap. Owned by Guy Hands's Terra Firma private equity group, EMI owes £3bn to Citigroup, the US investment bank that bankrolled the EMI acquisition by Hands on the eve of the credit crunch.

Although EMI has already talked to Sony about a distribution deal, negotiations were terminated after a few days as Allen concentrated on a similar transaction with Universal. But those talks broke down after disagreement over price, timing and a fear that Citigroup could block a transaction that would have involved Universal paying EMI an upfront fee of £200m.

Allen must present Hands with a detailed plan about how EMI can raise additional funds from outsourcing agreements such as the one suggested to Sony, and from cost-cutting and asset sales, well before 14 June. That is the date by which Hands must have raised £120m from Terra Firma investors to make good the terms of covenants on its debt obligations to Citigroup.

Unless the cash is forthcoming, Citigroup will be within its rights to seize control of EMI, whose artists include Robbie Williams and Coldplay. But Hands is eager to demonstrate to investors ahead of the deadline that the company can further boost above-the-line operating profit despite hefty interest payments on its borrowings which pushed the group into a £1.7bn loss last year. To that end, he has mandated Allen to bring in hundreds of millions of new money via another radical reshaping of EMI, which has shed 20% of its workforce since the Terra Firma takeover in 2007. Hands reckons he needs to illustrate how EMI can generate more cash if he is to have any chance of persuading his investors to pump in new money to save the company from ruin.

But analysts said it is by no means certain that Hands can secure investors' agreement and rumours are circulating in the City that Citigroup is lining up a sale of EMI to Warner Music and private equity rival KKR if it is forced to take control of the firm.

Relations between Terra Firma and Citigroup are poor after the two sides fell out over the terms of a debt-for-equity swap last year and since Hands announced that he was taking the bank to court in New York, alleging it made him pay an artificially inflated price for EMI (£4bn) because its bankers failed to tell him that a rival bidder had pulled out. Citigroup denies the claims and intends to fight the allegations.

Posted via email from WaTunes


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