Universal Music, the world's biggest record company, is poised to announce the £1.2bn purchase of EMI's recorded music division, home to the Beatles, Coldplay and Tinie Tempah, according to almost a thousand online sources across the world, today. At the same time, Sony Music Entertainment has obtained EMI's music publishing division for $2.2 billion. The Wall Street Journal reported that news this morning. [Discuss the latest on the news at the Coldplay forum now.]
The music division sale is the first part of the break-up of the 114-year-old British company, which is likely to be followed by the EMI's music publishing division, most likely to a consortium led by Sony for in excess of $2bn (£1.26bn). Although the enlarged Universal will now account a third of all music sales worldwide, company executives believe they can persuade regulators to allow it to swallow the business whole because the music industry is in such decline.
Nevertheless, Universal will respond by selling record labels or catalogues if the European Commission were to demand disposals. Its goal, however, will be to retain the Beatles material. Buying EMI is a coup for Universal's boss, Briton Lucian Grainge, whose bid had been considered opportunistic. Smaller rival Warner Music, recently bought by Len Blavatnik's Access Industries, had been considered the front runner.
EMI is being sold by Citigroup, the bank that ended up owning the record company, after it seized control of the debt-laden business from venture capitalist Guy Hands. However, Citigroup is retaining in deficit EMI's pension fund, which has 21,500 members. The deficit was £162m according to the last set of publicly available accounts.
What will this mean for EMI and the music industry?
Sir Mick Jagger, frontman for the Rolling Stones who left EMI for Universal in 2008, said EMI would “once again be owned by people who really do have music in their blood”. The deal will widen the gap between Universal and its rivals. It also marks a coup for Lucian Grainge, who was promoted to chief executive in January and became chairman in March. He said: “For me, as an Englishman, EMI was the pre-eminent music company that I grew up with. Universal is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”
EMI was put on the block by US bank Citigroup, which seized control of the company in February after it became clear that its owner, Guy Hands's company Terra Firma, could not contend with the £3.4bn debt taken on when he bought the business in 2007.
The double sale means that Citi will recoup about £2.5bn of its original loan. The bank also scooped a little over £200m in fees from the original loans to Terra Firma, meaning that its overall loss on those loans is a little less than £700m. Bank insiders characterised that as "a good result" given that EMI was bought at the height of the credit boom and is being sold in a downturn.
Universal's move for EMI means that the two companies will account for 38% of all recorded music sales worldwide. In some countries, such as France, that figure will be over 50%. Vivendi, Universal's owner, pledged to take on the regulatory risk in the deal. Chief executive Jean-Bernard Lévy said it would pay £1.1bn in 10 months' time and a further £100m on completion.
Simon Dyson, editor of industry newsletter Music & Copyright, said that he would "be very surprised" if regulators cleared the deal "without a lot of sell-offs" – and said that the overall market share level was perilously close to "the magic number for an outright no" for the Universal-EMI combination. Sony's deal for EMI's music publishing catalogue carries far fewer regulatory risks because Sony is a relatively small player.
Universal was quick to emphasise its commitment to EMI's musical heritage, with Lucian Grainge, the British chief executive of Universal Music, pledging to keep the historic Abbey Road studios where the Beatles and many other famous artists have recorded. "Abbey Road Studios are a symbol of EMI, a symbol of British culture, a symbol for the creative community of exactly what the company is and we are [now] part of," he said.
Universal said that it expected to save £100m a year in costs by combining operations with EMI. The company added that it was "very confident" that it would be able to get the deal through a regulatory investigation, which could take up to a year, saying that it expected "deep and fruitful dialogue".
To emphasise the point, Universal wheeled out Mick Jagger, who moved the Rolling Stones catalogue from EMI to Universal after a falling-out with Hands. The singer said Universal's move was "a very positive development and I particularly welcome the fact that EMI will once again be owned by people who really do have music in their blood".
Kit yourself up for the forthcoming MX tour and get spotted with Coldplaying's new range of merchandise! [click on the items for the full shop]
The new range of Coldplaying merchanise (unofficial of course to the official shop) has hit our stores, with our biggest range of goods so far. Prices are as low as they can be for a Cafepress shop so more people will be able to afford them. We don't take any profits for the sale of the merchandise as a result. Take a browse in one of the online stores nearest to you: UK | US | Canada | Australia | European (shipping is worldwide, but you can choose what currency to pay in) - simply alter the country dropdown menu at the top of the shop page. [thanks to TracieMorgan and zzz]
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