EMI Suitors Circle Ahead of June Deadline

LONDON/NEW YORK (Reuters) – EMI’s efforts to put in place a new business plan by mid-June could be overtaken by rival bidders contemplating bids although suitors must negotiate a complicated legal spat around the British music company.

Two people familiar with the situation told Reuters on Monday that Warner Music Group (WMG.N) executives were talking with a private-equity backed joint venture, KKR/Bertelsmann, about forming a joint bid for the firm behind Katy Perry, Coldplay and the Beatles.

Another industry source has told Reuters that rival music labels believe EMI could be open to offers for certain assets, including EMI Classics and the Blue Note jazz catalogue. EMI Japan was also mentioned as a possible asset that could be sold.

However, a person familiar with EMI who asked not to be named said there were no plans to sell the Classics and jazz businesses and dismissed the suggestion as an old rumour. Speculation over the sale of single, well-regarded assets could also be intended to push up the overall price for the company.

The suggestion that EMI’s recording assets could be sold to Warner has been doing the rounds for at least a decade and a deal would finally bring an end to the standoff after the two groups held a series of talks about buying each other.

The two sources on the possible Warner and KKR/Bertelsmann deal said their talks took place in the last few weeks and were described as being at an early stage.

Private equity firm Kohlberg Kravis Roberts & Co (KKR.AS) and Germany media group Bertelsmann [BERT.UL] last year created a joint venture to own and manage music publishing rights.

It has long been expected that the group would be interested in making a bid for EMI’s respected song publishing unit, leaving Warner, the third-largest music major, with EMI’s recorded music division.

However, other private equity groups could also be interested in the more stable publishing division, which earns a fee when music is used in adverts, on radio or the television.

CITI COMPLICATIONS

Any deal to sell or break up EMI, however, is now complicated by a dispute between its owners, Guy Hands’ private equity group Terra Firma, and Citigroup (C.N) over the advice and finance it gave to back Terra Firma’s acquisition of EMI in 2007.

EMI, the fourth-largest major music company, has also warned of a “likely significant” shortfall when the covenants on its 2.6 billion pound ($3.90 billion) debt are tested at the end of this month.

Terra Firma has written to investors to tell them it may need to inject over 100 million pounds into the music company to keep it within its covenants until March 2011, or risk Citigroup taking control.

Those familiar with Warner Music Group made it clear they had not approached either Citigroup or Terra Firma because they are waiting for the legal dispute to be settled. They also do not wish to approach the wrong side out of Citigroup or Terra Firma and risk offending the other.

A source familiar with the plans said EMI would now look to announce a new business plan by the middle of June, after the chief executive of EMI Music, Elio Leoni-Sceti, announced he would leave before he had drawn up his new strategy.

Like other major music groups, EMI has been hit by rampant online piracy and the move from selling physical albums to digital sales, often just as single songs. ($1=.6670 Pound)

By Kate Holton and Yinka Adegoke
(Additional reporting by Simon Meads; editing by Simon Jessop)