More Jobs To Go At EMI
New EMI chairman Charles Allen’s plans to persuade investors to cough up another £120 million to save the company will include cost cuts that could result in hundreds more job losses.
Allen, the former ITV chief who last month was brought in as executive chairman of EMI, is expected to lay out his plans by the beginning of May.
First he’ll show his proposals to Guy Hands, whose Terra Firma investment company paid £4.2 billion for EMI in 2007. He’ll need to help Allen convince three-quarters of his investors to back the appeal for new money.
The catch is Hands and his Terra Firma backers have already lost most of their initial £1.8 billion investment and on at least two occasions have had to cough up more to avoid UK label from breaking previous banking covenants.
Allen is expected to say that profits at EMI Music could be as much as £300 million by 2015, compared with the £200 million working profit it made for the year ending March 2010.
Achieving that could mean cutting the company’s £500 million cost base by at least a further £100 million.
Since Terra Firma bought EMI, the recorded music company has already cut costs by £200 million and shed 2,000 jobs in the process.
Hands and Allen are working to a pressing deadline as US banker Citigroup will be looking at EMI’s latest trading figures to calculate how much cash Terra Firma must stump up to rectify any breach in the terms of its loan agreements.
Analysts expect it will be in the region of £100 million. The amount would be due in the middle of June.
EMI’s position has been made more fragile by Hands suing Citigroup, which lent him the bulk of the acquisition price, claiming it misled him into overpaying when the deal was initially done. The case is to come before a New York court in the autumn.
If the investors aren’t persuaded to pour in more money, Citigroup may decide to move in to break up EMI in a bid to recoup some of what it’s lent to Terra Firma.
If the investors are persuaded to stump up a further £120 million, then Allen may use that as a platform to reopen talks with Sony, Universal, and Warner Music regarding the sale of EMI’s US distribution.
Warner appears to be hedging its bets, as The Sunday Times is among papers reporting that, along with New York-based private equity firm Kohlberg Kravis Roberts & Co., it’s already sniffing around Citigroup and plotting a breakup sale if EMI falls into the bank’s hands during the summer.