EMI Sale Intensifying As Citigroup Renews Negotiations With Sony, Gets Real With Universal
November 09, 2011   |    By Ed Christman (@edchristman), New York

In a turnaround from last week when nothing happened, Citigroup is not only making a renewed effort to sell EMI recorded music operations to Universal, but is also again actively engaging in discussions with Sony Corp., about EMI Music Publishing, sources say.

On the recorded music side, Citigroup finally began showing flexibility on pension liabilities and regulatory risk in its second day of renewed negotiations with the Universal Music Group, but the bank is said to be standing firm on its desire to sell for the headline price of $1.7 billion sources say.

Is Renewed Interest In EMI Auction Real, or Just Smoke?

Talks with the Access Industries over EMI's recorded music operation broke down over price and the pension fund liabilities over the last weekend in October and earlier that week with Universal on those same two issues, as well as the bank's insistence that the buyer assume regulatory risk.

Now that Citigroup is showing signs of being more malleable, a compromise discussion might have Universal assuming regulatory risk while Citigroup agrees to larger deductions from the price for the pension fund liabilities, or visa versa, says one source familiar with the talks. The pension fund liabilities are estimated at 400 million pounds, or about $642 million.

EMI: Access/Warner Pulls Out of Auction

Universal Music Group's bid is at $1.2 billion, and price remains a sticking point. But like all remaining bidders, Universal was already at the stage of negotiating the wording of the purchase agreement when it dropped out of the auction. So if a compromise could be hammered out now, the deal could come together quickly, says the source. But if the spirit of compromise dissipates, Citigroup may be forced to put the deal for recorded music on the back burner, until the financial markets rebound.

In the meantime, the former lead bidder for the recorded music assets, Access Industries remains disengaged from the auction and its unclear if Citigroup has communicated any willingness to compromise on the issues that divided the two in their previous negotiations.

EMI: With Bids Low, Company Considers Whether to Split Up or Postpone Sale

As for MacAndrews & Forbes, which sources say has bid about $1.2 billion for the recorded music assets, the Ron Perelman company still sits on the sidelines waiting to see if the talks with Universal fail, which would make it the last bidder standing by default, though perhaps not one with a bid high enough to induce Citigroup to sell.

Now that it has reignited talks for the recorded music operation, Citigroup may be willing to proceed with the sale of the publishing assets. For whatever reason, talks began to heat up today again with Sony, after two weeks in which Citigroup seemed to be slowing down that side of the auction, while it waited to see what would happen with recorded music.

While BMG Rights Management is still considered the lead bidder with pricing said to be escalating above the $2 billion mark, a Sony Corp. led buying group is making a last ditch effort to make it a two-horse race for EMI Music Publishing. However, Sony it is still wrangling to put together financing that could compete with BMG's offer, sources say.

Sony's bid to purchase EMI is complicated because, according to various press reports, it includes financing from other firms like Blackstone investment firm Mubadala Development Co., the Abu Dhabi fund, and investment bank the Raine Group, as well as Sony/ATV Music Publishing, which is a joint venture with the Michael Jackson estate. In order to purchase EMI Music Publishing, a new company would have to be created, which makes for more complex debt negotiation, than say if Sony itself was borrowing the money to pay for EMI. But even if it gets the  financing together, Sony also needs to get its bid up, too, because sources asay that even though Sony has upped its bid to the $2 billion level from its previously placed offer of about $1.8 billion-$1.9 billion level, it is still short of BMG's bid.

While Citigroup may compromise on who takes the regulatory risk, IMPALA put out a statement today saying it is still taking a hardline on its stance that an EMI sale to Sony and/or Universal would further create a duopoly, see story.

IMPALA Calls For European Commission To Intervene In EMI Sale

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