Analysis: Carpe Deal: Bronfman has best chance ever to buy EMI

NEW YORK Thu Oct 6, 2011 9:04am EDT

Warner Music Group Chairman and CEO Edgar Bronfman Jr. speaks at ''The Media as Parent'' panel discussion during the ''Beyond Primetime'' conference in New York February 5, 2007. REUTERS/Eric Thayer

Warner Music Group Chairman and CEO Edgar Bronfman Jr. speaks at ''The Media as Parent'' panel discussion during the ''Beyond Primetime'' conference in New York February 5, 2007.

Credit: Reuters/Eric Thayer

NEW YORK (Reuters) - Warner Music Group Chairman Edgar Bronfman Jr. has tried to buy rival record label EMI Group for the last six years. Now, his time may have come.

Bids for the storied music company, home to such artists as the Beatles and Coldplay, are due into Citigroup (C.N) on Wednesday, sources said.

Initially expected to attract intense interest from private equity firms, the tightening credit market have forced them to the sidelines, leaving Bronfman, the billionaire heir of the Seagram beverages fortune, in the serendipitous position of frontrunner to buy all of EMI.

Private equity firms often use cheap debt to finance acquisitions, so a constricting credit market severely limits the prices they can pay in deals. That in turn puts strategic buyers like WMG -- as well as Universal Music Group and Sony/ATV, both of which are also expected to bid on EMI -- in a stronger position because they can benefit from cost savings not available to PE firms.

All the bidders and EMI declined to comment.

The development is rich with irony given that WMG lost out to Guy Hands' private equity group Terra Firma TERA.UL the last time EMI was for sale in 2007, in part because the frothy credit markets allowed Hands to submit a highly leveraged bid of more than $8 billion.

Widely viewed as having overpaid, Hands breached debt covenants that EMI had with Citigroup, allowing the investment bank to take control of the record label in February after having to write down what it was owed by 2.2 billion pounds. ($3.4 billion)

Bronfman recently relinquished the CEO role at WMG, which itself was bought by Russian-born billionaire Len Blavatnik's Access Group for $3.3 billion last July, to focus solely on buying EMI.

Culminating an EMI acquisition has been a vision quest for him for years, but control issues always stood in the way of a deal, with management of either side unable to come to terms with being bought by or ceding control to the other because of pride and legacy.

Before Terra Firma bought EMI, for instance, Bronfman submitted escalating bids for EMI, but then-CEO Eric Nicoli so loathed the idea of selling to Bronfman that he ran into the arms of Terra Firma.

Bronfman now has his best chance to seize control of EMI and shed the mogul-in-training label that has dogged him for decades. He is likely to leave WMG after the EMI auction whether he wins or not. But pulling off the deal is not without its complication.

For starters, Blavatnik is fresh off completing the WMG purchase, and according to a source familiar with the process, he has told Citigroup that the EMI auction might have come too soon for him to bid aggressively.

WMG is also not alone among strategic bidders, according to several people familiar with the transaction process. Sony/ATV Music Publishing and BMG Music Rights are preparing to submit competing bids for EMI Publishing, the second largest music publisher in the world.

Bids for the publishing unit, which holds the rights to more 1.3 million songs, are expected to go beyond $2 billion, according to three people.

Sony/ATV a joint venture between Sony Corp (6758.T) and the estate of Michael Jackson, is led by former EMI Publishing chief Martin Bandier. BMG Music is a joint venture between German media giant Bertelsmann and private equity firm KKR (KKR.N).

Vivendi's (VIV.PA) Universal Music Group and billionaire Ron Perelman's MacAndrew & Forbes are interested in bidding for the recorded music side of EMI, which includes the Capitol and Virgin record labels. Bids for the label business, which has struggled for consistent hits in the last decade, are expected to come in around $1.5 billion.

If WMG or another strategic buyer fails to come up with a offer for all of EMI that is palatable to Citigroup, which is seeking between $3 billion and $3.5 billion, the bank is likely to sell it off as two separate businesses; recorded music and song publishing, said several people familiar with the auction process.

Citigroup was expected to have the sale wrapped by the end of this month, but with uncertainty in the credit markets, there is a real prospect that a deal could be delayed.

"Citi has already taken a haircut on EMI, so they can hold out if they feel the bids are too low," said one of the people familiar with the process, but not permitted to speak publicly about the deal.

EMI Group Chief Executive Roger Faxon has argued for EMI's owners to keep the recorded music and publishing businesses together because he sees greater benefits to both sides through collaboration as the industry weathers major changes and sales shrink.

(Reporting by Yinka Adegoke; Editing by Peter Lauria)

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