The EMI Second-Guessing Game

While U.S. bank Citigroup quietly mulls over the offers it’s received for EMI, the global media is trying to guess, and second-guess, the outcome.

At least one report says that, in today’s business climate, a sale to another major label might not come under the regulatory procedure that’s been anticipated, while others suggest the sluggish economy may persuade Citi to put the deal on ice.

The Los Angeles Times says some antitrust experts reckon selling EMI to Universal Music Group, Sony Music Entertainment or Warner Music Group is not likely to “generate much heat from regulators.”

The argument that the record labels’ power in the music industry is so diminished that antitrust officials might not be inclined to block a sale won’t carry any weight with Impala, the independent music companies’ association.

“There is no doubt that should one of the market leaders Universal or Sony make a move to buy EMI or part of it, such a move would encounter strong resistance from the regulatory authorities and would be blocked outright,” says Impala executive chair Helen Smith.

UK trade paper Music Week has quoted media analysts saying the “deepening financial crisis” may cause Citigroup to delay the deal or see the value of its asset drop by as much as $820,000.

Bloomberg recently reported that an analysis of last year’s trading figures suggests EMI could be worth as much as $4 billion, about $500,000 more than most of the media has been predicting.

The reasoning behind the argument that EMI’s asset value may fall is that the credit markets are freezing up and – with a price tag commonly estimated to be around $3.5 billion – EMI is looking like a really big-ticket item.

Potential purchasers may need to round up a consortium of banks to put that sort of money together. That may be more difficult given that Citigroup is saddled with selling the company only because of what happened the last time EMI was under private ownership.

The bank had to seize the company when former owner, private equity group Terra Firma, defaulted on its loan.