First key point
Second key point
Citigroup has fired the starting gun on the auction of EMI, the British music business it seized from Guy Hands’ Terra Firma group in February, setting up a probable sale of the company behind the Beatles and the James Bond theme tune.
The US bank is moving faster than many potential bidders predicted, hoping to take advantage of a stabilising US music market and strong interest from bidders in this spring’s auction of Warner Music, which Len Blavatnik’s Access Industries won in May with a $3.3 billion offer.
Mr Blavatnik, whose deal could complete by the end of July and who could find hundreds of millions of dollars worth of one-off savings from combining Warner and EMI’s recorded music arms, is expected to be among a host of strategic, financial and individual bidders for EMI.
Other participants in the Warner auction that are expected to look at EMI include BMG Music Publishing, backed by Kohlberg Kravis Roberts and Bertelsmann, Sony’s recorded music and publishing ventures, and Vivendi’s Universal Music.
However, people who have talked to Citigroup in recent weeks said the bank is sensitive to accusations of breaking up the home of the Beatles, and that EMI has attracted preliminary interest from British potential buyers interested in preserving its UK legacy.
That and the prospect that a bid involving any of EMI’s three largest competitors could be tied up by European regulators for six to nine months has led many people circling EMI to believe that Citigroup may favor alternative bidders.
Citigroup wrote off 2.2 billion pounds of its 3.4 billion pounds loans to Mr Hands’ 2007 buyout when it seized control of the company earlier this year, leaving EMI with more than 300 million pounds in cash and 1.2 billion pounds of debt. The bank could still record a gain if it sells EMI for over 1.5 billion pounds.
Citigroup is unlikely to send out an information memorandum with EMI’s latest figures this week, but bids at a similar multiple to the Access offer for Warner could fetch about 2.4 billion pounds -2.8 billion pounds.
Access paid 8.3 times Deutsche Bank’s estimate of Warner’s 2011 earnings.
A statement from EMI said its directors would explore a possible sale, recapitalisation or initial public offering.
However, people familiar with the company believe that an IPO or recapitalisation are only fall-back options should satisfactory bids not emerge.
Roger Faxon, EMI’s chief executive, has argued that its music publishing and recorded music divisions are worth more together, but Citigroup is expected to entertain separate offers if they would maximise value.
Mr Faxon, who is not expected to pursue a rumoured management buyout, has centralised some functions, setting up a single unit to sell music for advertisements and films, but Citigroup has ensured that the divisions could still be separated.
Warner signed confidentiality agreements with 27 parties and received preliminary offers from 10, some of which teamed up in the late stages, and EMI’s auction may also yield joint bids.
"Another target for watering down is the amount of money the reform bill would require firms to pay upfront as part of a bailout fund for too-big-to-fail firms that might need financial help."