EMI spins record
A bid by EMI boss Roger Faxon to dispel “crazy headlines” about the troubled British music label had the opposite effect yesterday when his internal memo to the troops was leaked.
Faxon was trying to quell rampant speculation about the fate of EMI after its owner, Terra Firma, lost a high-stakes legal battle with lender Citigroup. The verdict could force Terra Firma to relinquish control of EMI to Citi, which provided the private-equity firm with the roughly $4 billion loan (2.5 billion pounds) to purchase EMI.
Earlier this year, Terra Firma had to ask investors to cough up more cash to keep EMI from violating its loan covenants with Citi. It faces another crucial debt payment a few months from now.
Faxon’s memo, which was unearthed by Billboard Magazine yesterday, presented a string of supposedly erroneous headlines about EMI that Faxon sought to shoot down.
Faxon, who took the top slot in June, said one headline — “EMI WILL GO INTO CHAPTER 11 IF IT FAILS ITS COVENANTS!! — is “more fairy tale than actual journalism.”
“For a start, EMI is a British company and there’s no such thing as Chapter 11 in the UK,” he wrote. “And as our most recent results make very clear, EMI is easily meeting all its debt obligations, and paying all its bills, with room to spare.”
While EMI is meeting its obligations at the moment, the company faces another debt payment in March that will require it to come up with additional cash.
One option is for Terra Firma’s backers to put more cash into the firm to meet the deadline. Citi and Terra Firma could also renegotiate terms, although that appears less likely after their bruising court battle.
Faxon also downplayed rumors that a rival will swoop in and buy EMI, saying that few of the music majors are in position to do a takeover.
“I don’t know if you’ve looked at any of our competitors recently, but none of them are having a particularly easy time of it,” Faxon wrote.
He pointed out that rival Warner Music has tried and failed before to strike a deal with EMI after encountering resistance from shareholders and regulators.
“And having been involved [in] the doomed merger of EMI and Warner Music in 2000, I can tell you there is no easy route through those issues,” he added.
Although Faxon stopped short of saying EMI isn’t for sale, he is more emphatic that EMI will not be split up.
He references documents in the Terra Firma-Citi trial as evidence that the company is worth more together than apart.
“As was clear from the trial documents splitting the company up was looked at along the way,” Faxon said. “But it went away because it simply would not work.
“To be clear, the global rights management strategy for growth can only be pursued if the company is kept together and so it will be.”
One rival music executive said addressing press speculation in a memo is a mistake since few people know what EMI’s future holds next spring. “You’ve just addressed the press without giving any definitive answer to the questions.”