The last big UK record company, EMI has been sold off, initially to a UK based private equity group, but given that it’s the role of private equity groups to break up and sell off and generally maximize their holdings, there’s every chance that EMI’s final destination could be to end up in pieces or dumped lock stock and barrel onto one of the other major record labels, after some necessary housekeeping. Previous attempts to bundle EMI in its entirety into another major player have met with insurmountable regulatory hurdles.
A company called Maltby has been formed by Terra Firma, the private equity fund to acquire EMI, and it will pay around £2.4 billion ($4.8 billion) cash for all the shares, which with debt values EMI at £3.2 billion ($6.4 billion).
That’s a premium of about 13% over the price EMI was at when Warner Music Group offered to buy it, and 19% above what it’s been trading at lately. The cash will come from existing Terra Firma funds plus debt funding from a group of lenders including Citigroup Global Markets and Citibank.
If the company had not been sold, the stock was due another slump, because on the same day EMI announced yet another fall in revenues and profits, with the financial year to the end of March seeing revenue fall to £1.75 billion ($3.5 billion) compared to £2.01 billion ($4 billion) last year. EMI operating profit was down to £150 million ($298 million) compared to £250 million ($497 million) the previous year and that’s before any amortization and tax and impairments etc, meaning that EMI has shown an overall loss of £263.6 million ($523 million) compared to a profit of £118 million ($234.4 million) last time.
Eric Nicoli, group CEO said ‘During the past year, we have multiplied our digital distribution channels by entering into agreements with partners who will make our music available across their platforms in many different ways. Our digital activity is extensive and pro-active and we are open to experimenting with all emerging business models. In April 2007, we were the first music major to make available a new digital rights management (DRM)-free premium sound quality download product as part of our strategy to provide consumers with compelling music propositions.’
And once you take a look at the figures before the DRM-free announcement, it’s easy to see why EMI took that dramatic move. Terra Firma said that its objective was to build on EMI’s current position as one of the world’s leading music companies and accelerate the development of its digital and online strategy.