EMI needs emergency funds or it will default on its debt to Citigroup
Online PR News – 01-April-2010 – – London, UK - The British record label needs £120m cash by June 14 to meet banking covenants on its £3bn in debt. EMI had hoped a five-year licensing deal selling the rights to its artists including The Beatles and Coldplay would have pulled in much-needed cash.
The halt in EMI’s on-again-off-again talks with Universal, which is owned by Vivendi SA, mark the latest chapter in a tumultuous period for EMI since Terra Firma bought it at the height of the buyout bubble in 2007. Universal Music, the world’s largest record company, walked away early Wednesday on a distribution agreement that would have raised roughly £200m for EMI and help it stave off a default.
A source close to the deal said, “The talks were called off at lunchtime yesterday. The deal had its merits, but Charles Allen was not prepared to accept at any price.”
CEO Peter Tasca of Laureate Trust says, “EMI has an unsustainable business structure, I don’t see any exit strategy that the investors can take without realizing a substantial loss. We would not invest in an industry that has declining sales and can’t fully control the content they distribute because of the rise of file sharing sites.”
EMI’s music publishing arm is thought to be worth about £1.2bn, although its music recording business is more difficult to value given the departure of big-name artists including the Rolling Stones and Radiohead.
Tasca also says, “The danger of entering into a deal with EMI now is that if Citigroup (NYSE:C) does gain control of the company, the bank could come between EMI and the new payments.”
Terra Firma is now expected to present a new business plan for EMI to its investors by the end of April in an effort to persuade them that the business has a future and to keep it out of Citigroup’s hands.