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EMI Privatizing

Going, Going,… GonePrivate?

Earlier today, London news wires starting buzzing with reports that one of the globe’s “Big 4” record companies, UK based EMI Group, had agreed to a buyout from private equity firm Terra Firma for £2.4b ($4.7b) (including debt the deal is reported to be worth £3.2b (approx $6.27b)).

emi At this stage, the deal has only been approved by EMI’s board of directors which characterized the deal as “fair and reasonable.”  In a statement carried on BBC, EMI’s Chairman, John Gildersleeve justified the deal saying, “Terra Firma’s offer delivers cash now, without regulatory uncertainty and with the minimum of operational risk to the company.”

The 265pence-per-share offer from Terra Firma still must be approved by the shareholders.  In the event that the deal doesn’t close, EMI will pay a breakup fee of £24m (approx. $47m)

EMI has been struggling over the past year to adjust to the changing landscape of the music industries, particularly the increase it downloadable music.  In a break from it’s peers, and in an effort to capture more from online sales, EMI recently announced deals  to offer its music without Digital Rights Management on both Amazon’s upcoming music store and at industry leader, iTunes.  On Thursday, EMI announced that it had accrued a 65% drop in pretax profit the past year.

Over the course of the year, EMI has been the subject of several takeover rumors.  Previously rejected a takeover bid from US industry rival Warner Music (though some suggest Warner was again a bidder this time).  EMI also supposedly entertained other offers from at least 3 private equity firms before deeming Terra Firma’s bid the most "attractive.” 

One of the benefits of selling to Terra Firma is timeliness.  The deal is unlikely to raise the kind of competition issues/government review that would have come up if EMI was bought by one of its competitors.  By selling to a Private Equity firm, EMI will likely have a much easier time in closing the deal.  Additionally, once private, the company may have a much easier time implementing its turn-around, restructuring plans if the company is not broken up into pieces (Terra Firma is saying it will keep the company intact, that it finds value in both the cash positive publishing business line and the struggling recording business.).

The benefits of being private are, at least, part of the logic and belief of Guy Hands, head of Terra Firma.  In his sound byte on the deal, he is quoted as saying the deal will help EMI "build on its current position as one of the world’s leading music companies and accelerate the development of its digital and online strategy to fully exploit this long-term growth opportunity.” 

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