All’s Well At EMI

EMI is in no danger of being broken up, sold or going bankrupt, according to a staff memo from chief executive Roger Faxon.

He says the only problem the British music company faces is the fault of the media, which has been indulging in “fairy tale journalism,” “crazy headlines” and speculation that “only contains the smallest grain of truth.”

Faxon sent the note to staff Nov. 11, apparently after reading reports of what might happen to EMI after owner Terra Firma lost the high-profile and high cost fraud case against lender Citigroup.

The ruling laid down by the Manhattan District Court Nov. 4, when an eight-person jury decided the U.S. bank didn’t mislead the London-based private equity firm into over-paying for EMI, caused a rash of newspaper stories questioning the future of the company.

Faxon said the content of some of the pieces was “more fairy tale than actual journalism,” as he set out to obliterate “some of the myths that have been bandied about.”

He told staff EMI has a great opportunity to build a thoroughly modern and vibrant company and shouldn’t let “uninformed headlines or press chatter” get in the way.

His memo says the company won’t be going into Chapter 11 bankruptcy – at least partly because there’s no such thing in the UK – because it’s easily meeting all its debt obligations and paying all its bills with room to spare.

The memo doesn’t say why Terra Firma investors found it necessary to dip into their pockets to provide £120 million worth of “equity cure” to avoid EMI breaking its loan covenants with Citigroup.

Faxon also rules out EMI being swallowed up by a rival because at the moment none of its rivals is financially geared to attempt a takeover – regulatory issues notwithstanding.

He also dismissed “rumours” the company would sell off catalogue to meet future bank covenants, saying they’re untrue and would also be an “utterly idiotic” move.

“Anyone can make a bit of money by selling off a piece of catalogue here and there. But all that does is lower the value of the rest of the business,” he said. “You might make a quick buck, but you’re left with a company that is suddenly weaker than it was before.”

Dealing with another of the “crazy headlines” of the last month, Faxon says there’s no danger of the company being “broken in two in sell off shock” as both Terra Firma and Citigroup understand the best way to build value is for EMI to remain as one company.

“We’re here to create long-term value – for the artists and writers we represent, for our financial stakeholders, and for each other. And that’s what we’re going to do,” Faxon said at the close of the memo.

Two days later, The Observer quoted Wall Street sources saying Warner Music is contemplating a £470 million ($750 million) bid for EMI’s recorded music division.

It said Terra Firma boss Guy Hands says he’s not interested in a sale, but he’s understood to be under pressure from Citigroup to make a deal.

The Observer also said Hands and Citigroup are expected to sit down to negotiate a debt-for-equity swap that would put the bank in the driving seat.