Citi may break up EMI

CITIGROUP executives are considering plans to break up iconic record label EMI, despite its chief executive’s wish to keep it whole, sources told City A.M. yesterday.

The bank, which has taken EMI out of private equity hands after declaring its £3.4bn debt unsustainable, will not fight to keep the company in one piece if buyers for different parts come forward, sources said.

This runs counter to protestations by EMI’s chief executive Roger Faxon (below), who told employees its recorded music and music publishing arms should stay united.

Sources close to Citi told City A.M. that while Faxon was a valued stakeholder and his position was clear, the bank “owed it to shareholders to consider all the options.”

But Faxon defended EMI’s unified model yesterday. “Global rights management is the future, and it takes both parts of the business working together to achieve that future,” he said in an email.

Private equity house KKR, owner of music rights management company BMG, is current frontrunner to buy EMI, followed by EMI’s long-term suitor Warner Music.

But there is no shortage of interest in its parts, and Citi is keen to start to recoup some of the £2.2bn loss it has incurred on EMI.

Industry giants such as Universal Music, the world’s largest record label owner and music publisher, would snap up EMI’s recorded music catalogue, which include artists such as The Beatles and Kylie Minogue (top). Sources close to Universal Music told City A.M. that while it was barred from bidding for EMI for competition reasons, “parts of it would be attractive” in a break-up. “Universal may well be interested in some of the parts if they were to become available,” one source said.

BMG, which has expressed interest in buying Warner’s music publishing arm Warner/Chappell, may prefer EMI’s music publishing business instead. “That may be marginally more attractive to it than Warner/Chappell,” sources said.

Jon Moulton, founder of Better Capital, placed odds of two to one on EMI being broken up. “I think Citi would take cash for anything it could,” he said.

But Impala, the European lobby group for independent record labels, yesterday threatened to campaign against any plan to merge EMI with a competitor, saying it would lead to too much “concentration” in the industry. The group managed to tie up Sony Music and BMG’s eventual merger in 2004 for three years in the courts.