Warner Music, Blavatnik Bring Baggage To An EMI Deal

Who needs Junior and Len's excess baggage?

The game is on. Citi has started preparing the final papers for the auctioning of EMI. The bidding floor is expected to be $2.5 billion, according to a report last week in The Wrap by Johnnie L. Roberts, with at least half a dozen buyers readying offers.

Of course Len Blavatnik’s name is the first that pops up when speculating about prospective bidders, but at this stage he comes with some baggage that may not make the transaction as quick and clean as Citi would like. Sources tell me that Citi definitely wants to get EMI off its books before the end of the year and although Blavatnik may make a substantial offer, he is also now the target of a number of shareholder lawsuits over the purchase of Warner Music and that could spook Citi in a big way. Not only are the lawsuits a potential problem, though some observers think that they’ll eventually go nowhere in the courts, but Blavatnik would definitely face regulatory scrutiny that a KKR, Ron Burkle or Tom Gores would not. The whole Warner Music sale has had a very fishy smell to it and Citi has had enough trouble fumigating the remnants of Guy Hands and Terror Firma. If the Blavatnik bid isn’t off the chart and is just competitive, why would Citi need the aggravation?

It’s no secret that EMI CEO Roger Faxon has been pushing to keep the company together as opposed to selling it off in pieces, and he’s right. Roberts interviewed a moronic ex-EMI employee who stated, “For the success of both, it’s inevitable that they come together. Neither, especially EMI, can exist as a standalone for any great length.” This, of course, is sheer stupidity. EMI, if run correctly, could easily remain an independent company in spite of the slow death of the music industry. And don’t forget that the publishing arm spits out a ton of cash that plenty of the EMI bidders would love to get their hands on.

My guess is that EMI will bring nearly as much, if not a little more, than Warner. I’ve always maintained that it is a better buy with better assets. Frankly, I think that WMG needs EMI more than EMI needs those knuckleheads. Warner has been thoroughly plundered during Junior’s reign. One of my favorite quotes is from a recent Forbes interview with Lyor Cohen who, when making his justification for demanding additional rights from artists in 360 deals, said that Warner Music needs the extra cash to retain “the very finest, most seasoned, most creative, thoughtful, transformative” executives to run the company. These guys, including Cohen’s own multi-million dollar package, are the same guys who have lost hundreds of millions of dollars for the company over the last several years.

If the WMG executives were that enlightened they would have signed a US Spotify deal by now. They will, and soon, but “creative, thoughtful, transformative”? No.

One thing is for sure though. You can bet that Lyor Cohen has a golden parachute with a platinum lining—just in case.

 

 

© 2011, Wayne Rosso. All rights reserved.

2 comments for “Warner Music, Blavatnik Bring Baggage To An EMI Deal

  1. June 16, 2011 at 10:03 PM

    Charles

    All fair points, but I would argue that on an international basis the recorded music catalog could rival Warner’s and one can never underestimate the value of The Beatles catalog. I also feel that EMI has the better part of the Sinatra catalog over Warner’s. I believe that if purchased at the right price, EMI is a much better deal than WMG. Interestingly Blavatnik reportedly paid $3.3 billion cash for WMG, but $2 billion of that is in assumed debt and Warner reportedly has over $400 million cash on hand. So Blavatnik’s real price for WMG was between $800 and $900 million, and I’m willing to bet that most of that isn’t his money.

  2. cathartic charles
    June 16, 2011 at 9:20 PM

    EMI’s assets on the publishing side may indeed be more valuable than the WarnerChappel end.
    However the recorded music side, catalog included, is not nearly as valuable as one thinks.

    “EMI, if run correctly, could easily remain an independent company in spite of the slow death of the music industry.”

    That is a very big IF and the key is run correctly which it is not by any stretch of the imagination.

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