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November 3, 2011 


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FEATURE NEWS


Warner Drops Out Of Bidding For EMI
Posted: November 2, 2011
LONDON (VIP NEWS) -- The sale of EMI hangs in the balance after frontrunner Warner Music withdrew a bid for the British company's recorded music division understood to have come in at under $1.5bn, short of the price tag that owner Citigroup had been seeking.

Warner Music, which was acquired by Len Blavatnik's Access Industries for $3.3bn in May, is the frontrunner to buy EMI's recorded music division and the company had been reported as tabling a $1.5bn bid.

However, it is thought that Warner's offer is in fact below this level, far less than Citigroup had been hoping for when it originally targeted making $4bn from selling the whole of EMI, the record company behind the Beatles and Tinie Tempah.

Warner, widely considered to be the most logical buyer of EMI's recording music division, home to the Capitol and Parlophone record labels, had its hand strengthened late last week when Universal Music, tipped to be the only other major bidder left in the running for the recorded music division, pulled out.

In addition the $2bn sale of EMI's music publishing division, considered to be a much simpler deal to complete, gravitated towards BMG Rights Management. BMG, a joint venture between Bertlesmann and the private equity group KKR, faces no regulatory hurdles because its existing operation is small, and is considered to have taken pole position against rival Sony/ATV.

The bid from Sony/ATV, a joint venture between Sony and the estate of Michael Jackson, has not yet tied up all of its funding commitments to push through a deal.

The two developments have strengthened Warner's bargaining position, leaving its bid as the last piece of the sale jigsaw that needs to be completed. However, sources close to the music company claim the price issue has been an ongoing one.

Citigroup, which took control of EMI in February after Guy Hands' Terra Firma could no longer support its debts, is keen to get the music group off its books. The bank was forced to write off 2.2bn of the more than 3bn it lent EMI under the Hands deal.

The sale process has also been hampered by a number of factors including bidders becoming increasingly wary of having to factor in hundreds of millions of pounds in pension liabilities and lease guarantees and offering low bids as a result.

Warner considers that Citigroup needs to sell EMI more than it needs to buy it in the world's biggest market US Warner controls 20% of the recorded music market with EMI a distant fourth place among the majors with just 9% and is willing to call Citigroup's bluff on dropping the auction.

While there is an expectation among observers that a deal will be done, with Warner and BMG in pole position to split EMI, Citigroup could look to stop the sale and hold on to EMI for at least another year.

However, such a move is likely to be hugely disruptive for EMI's management and artists, with question marks over what commitment to investing in talent there would be in a company rigidly monitoring its bottom line to keep a pricey for sale sign over its head.

One source with knowledge of the negotiations believes this almost certainly will not happen unless the process stretches significantly into November.

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