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So, what is in Allen’s grand EMI biz plan, and will it work?
By CMU Editorial | Published on Monday 26 April 2010
Rarely does a weekend go by these days without at least one of the Sunday newspapers giving a little time to scrutinising the previous seven days at EMI Towers, and this weekend was no exception.
First, The Observer has been asking City types whether EMI owners Terra Firma have any chance of persuading their financial backers to stump up £360 million by the end of May. As previously reported, the equity firm is trying to raise that amount so that the music company can meet its £120 million loan fee commitments to bankers Citigroup not only this year but in 2011 too. A further £120 million is needed to plug a hole in the major’s pension fund.
There seem to be mixed opinions as to Terra Firma’s chances of raising the cash. The pessimists point out that PricewaterhouseCoopers has just published a report that says that the global record industry will continue to contract at a “compound annual rate” of 4.4% through to 2013, which will make investment types even more cautious about the possibility of EMI ever turning rounds its fortunes. The paper quotes one analyst as saying: “Investors are being asked to make a leap of faith as they have already written down the value of their EMI holding to virtually zero”.
But other sources tell The Observer that Terra Firma already has money people outside of the equity firm’s current network of investors who are willing to put up the cash if existing backers aren’t willing to take on any further risk. Some insiders say that the new investors, thought to be mainly US and Canadian pension funds, will ensure that, whatever happens, EMI will not default on its commitments to Citigroup in June, meaning it will remain in Terra Firma’s ownership for at least another year.
As also previously reported, Terra Firma are trying to woo investors by showing them a business plan prepared by newish Executive Chairman Charles Allen which outlines how he plans to turn round the flagging music firm’s fortunes.
It was thought that plan would include the much previously mooted proposal that EMI licence out its entire recordings catalogue in North America, as well as plans to sell off whole divisions of the major, most likely its Japanese outpost and Christian music labels. However, the Financial Mail reckons neither of those proposals are in Allen’s final report.
Well, the US licensing arrangement is sort of in there, but expressed differently. Rather EMI would seek to do a distribution deal, most likely with Warner, which would bring in less upfront money but which would give the London-based major more control over its catalogue in America, while allowing it to shut down its own costly North American distribution network.
