Citigroup Could Veto EMI Licensing Deal

LONDON (Reuters) – EMI Group is talking to rivals about licensing its music in North America but could fall foul of a requirement that Citigroup (C.N) approves any deal, sources familiar with the situation said.

EMI, owned by Guy Hands’ buyout house Terra Firma, has been talking to Universal (VIV.PA), and a couple of other unnamed parties, about leasing its recorded music in the United States for a period of five years for about 400 million pounds ($597.9 million), one of the sources said.

However EMI’s U.S. assets form part of Citigroup’s security on its 2.6 billion pounds in loans for the business, meaning EMI will need the approval of the U.S. banking giant to push ahead with the sale, a separate source said.

Universal is the world’s largest music company, owned by Vivendi, while EMI is currently the fourth largest, and it has always struggled in the United States.

EMI, which recently posted a 1.56 billion pounds full-year loss, is set to fail a test of its banking covenants at the end of March, meaning it has until mid-June to inject money to get the business back within the terms of its debt.

Citigroup would not withhold its approval of a deal, should EMI be able to show it was in the music company’s best interests. However, should it believe a deal is not in the interests of the wider stakeholder group, it could decide not to approve it, the source added.

Another music industry source who asked not to be named pointed out that an agreement of this sort had not been done before on this scale, and said it would be very difficult to agree in such a short space of time.

The industry source pointed out that any agreement for the world’s biggest and most influential music market would have to resolve issues such as dealing with royalties, who would provide tour support and antitrust issues.

Executives within the industry also questioned the price as it is not clear how much the entire EMI recorded music business would be worth.

At three times historic EBITDA, the recorded music division could be worth around 1 billion pounds, before any discount to peers to reflect its recent loss of some artists.

Music industry sources say EMI, which has such artists as the Beatles, Coldplay and Lily Allen, has held talks with lots of groups to discuss its options. Assets that are often touted as possible disposals include EMI Japan or the classics division.

Forrester analyst Mark Mulligan told Reuters any licensing deal would be very complicated but he said the company was under pressure to bring in cash.

He also said that EMI was historically weak in the United States and may be willing to try alternative options there, as opposed to other markets where it is stronger.

By Simon Meads and Kate Holton
(Additional by Yinka Adegoke in New York; Editing by David Cowell)