All Over, Bar The Speculation

The September 18 stock exchange deregulation of EMI will dot the last I and cross the last T on the U.K. music company’s £3.2 billion sellout to Terra Firma investment group, but the British business pundits are already well into what they think will happen next.

The fact that former chief exec Eric Nicoli and chief financial officer Martin Stewart have gone – prompting speculation about the size of their payoffs – and been replaced by what appears to be a temporary company hierarchy points toward a quick sale of the company’s recorded music business.

Although, as Financial Times pointed out, EMI’s artists could hardly have expected the new supervisory board to be comprised of "Robbie Williams, Sir Simon Rattle and the Spice Girls," what they’d likely describe as "the suits" Terra Firma has now put in place are hardly the sorts to inspire a talent-driven revival of the company’s ailing fortunes.

Terra Firma intends to stamp out "any signs of creative extravagance and financial excess," the Sunday Telegraph reported, while pointing out that EMI is home to such artists as Robbie Williams and Lily Allen.

The appointment of a former ICI senior vice president of finance (Chris Roling), a management consultant (Ashley Unwin) and a lawyer (Julie Williamson) suggests they’ve been put there to babysit the record company until it can be hived off to Warner Music or whatever other interested party comes along.

Roger Faxon stays on as chairman and chief executive of EMI’s music publishing arm, but it brought in £105.6 million last year – while the records business lost £263.6 million – and its steady stream of royalty income is leveraging Terra Firma’s takeover.

Warner remains the U.K. media’s favourite to buy the record company, but despite a couple of failed merger bids and buyouts, many business analysts have spent much of five years treating the relationship between the U.S. giant and EMI as if it was a marriage made somewhere in pop heaven.

At the moment it certainly looks as if predicting a deal with Warner is based more on sentiment than logic. Edgar Bronfman Jr. and the backers who helped him buy the company have seen their shares tumble by about half. Buying a British record company that makes huge losses may not be in the forefront of their minds.

Apart from that, the longer Guy Hands and his private equity group have to hang on to EMI’s recorded music business, the cheaper it may become.

Also against a Warner deal is the old stock exchange adage that says if major mergers or buyouts fall apart, don’t put your money on them the second time around.

EMI’s shareholders saw two merger efforts fail within four years and the company’s board turn down last summer’s 320 pence per share approach from Warner, but still hung out for the U.S. giant to come in and trump Terra Firma’s 265 pence per share bid. It didn’t happen.

The papers haven’t been kind to Nicoli. He may feel such execs as Alain Levy and David Munns, who he was forced to dump at the beginning of the year, let him down badly on the creative front.