Indie Warning Over EMI Sale

Whatever plans Citigroup may have for EMI, the independent music companies have warned the U.S. bank it faces a rough ride if it tries to sell EMI to another major label.

IMPALA, the Brussels-based association representing the indies, says European competition regulators will not make it easy for Citi to set up any onward sale to Sony, Universal, or even Warner Music.

In the days leading up to Feb. 1, when Citi took control because Guy Hands and his private investment vehicle Terra Firma couldn’t service the £3.2 billion it borrowed from the bank to buy EMI, newspaper reports suggested that various majors were circling with a view to picking up at least part of the troubled English music company.

Other reports said Citi may give Hands the opportunity to buy back EMI, although it’s doubtful the U.S. bank would lend him the money to do it.

IMPALA released a statement making it clear it would protest any moves to sell EMI to a major. It said it’d oppose any further concentration in the music market and pointed out that the barriers to obtaining regulatory approval in the EC are far higher than a few years ago.

“In the current regulatory climate, it is difficult to imagine the EC agreeing to further concentration,” IMPALA executive chair Helen Smith explained. “Even an attempt to combine EMI/Warner would be blocked unless substantial remedies were put in place to counter the anti-competitive impact.”

IMPALA, which last year celebrated its 10th anniversary, has shown it’s up for a regulatory fight if it thinks its members’ interests are being marginalised.

In 2004 it stalled the Sony-BMG merger to such effect that four years later – when the Japanese company bought out its German partner – the European courts still hadn’t finally ruled on whether it should have been allowed to go ahead.

The indies’ association now believes any attempt by Sony or Universal to increase their market power by buying EMI would be rejected out of hand by the EC.

It also says Warner Music, which has been regularly tipped as the most likely company to bid for EMI, would need to implement some far-reaching remedies to improve competition.

The U.S. major has reportedly been trying to sell Warner/Chappell, its publishing arm, in order to clear a path to buy EMI.
Most UK newspapers are suggesting Citi went into EMI because it wants to put it on the block by the middle of the summer.

The U.S. bank made its move when Maltby Investments Ltd., the vehicle formed by Terra Firma to own EMI, defaulted on its loans and went into administration.

Joint administrators Tony Lomas and Peter Spratt of PricewaterhouseCoopers sold the company to Citi. The failure of EMI is reckoned to have cost Terra Firma about £1.75 billion, while Citi is about £2.2 billion down and still has a further £1.2 billion at risk.

Any hope of a compromise that would have meant both sides could have cut their losses was dashed when Hands filed suit against Citi in a New York court, claiming the bank has misled him into paying too much for the music company in the first place.
There’s been no word from Terra Firma, but a note on EMI’s website says the company now has the financial flexibility to invest in its strategy for growth.

Citi has reportedly reduced EMI’s debt by 65 percent from £3.4 billion to £1.2 billion and made available more than £300 million cash.

EMI chief exec Roger Faxon described the move as “an extremely positive” step for the company.

“It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity. With that solid footing, we are confident in our ability to drive our business forward,” he said.