While EMI announced earlier this week that it is exploring strategic alternatives that will see the company either sold, go public or be recapitalized, the betting is that the major will be put up on the auction block as the first option.
Citigroup has owned EMI since February, when it forced out Terra Firma and recapitalized the major by cutting its debt from 3.4 billion pounds to 1.2 billion pounds.
When EMI comes up for sale, many of the same suitors involved in the Warner Music Group auction, which was ultimately won by Len Blavatnik's Access Industries, are expected to pursue an it. The WMG process started with 37 companies expressing interest in buying the major, while 27 of them entered into confidentiality agreements, according to a May 20 proxy statement from the WMG filed with the SEC. Ultimately 10 companies made bids for either the whole company or parts of it.
While the proxy statement identifies only Access by name and the rest are labeled as "Bidders A through N," giving some details about what the 15 bidders did in each round, a little deductive reasoning shows that during the process, Access Industries, Platinum Equity/Gores Group and Yucaipa and Sony Music made bids for the entire company. In addition, Platinum/Gores also put in a bid for just the recorded-music operation, in the event the company was sold in pieces.
Moreover, the proxy shows that Primary Wave/Oaktree and Guggenheim Partners/David Schulhof made bids for the publishing company; BMG made a bid for the publishing and certain recorded music assets; and Live Nation and Ron Perelman's MacAndrews & Forbes made bids for the recorded music operation -- as did Universal Music Group, which initially signed a confidentiality agreement but didn't submit a first-round bid.
According to sources, UMG got back into the process when it looked like Goldman Sachs and the WMG board were willing to sell the company in pieces. In the end, the WMG board decided to entertain bids for the entire company -- and it came down to three bidders: Access, Platinum/Gores and a consortium comprised of Sony/Guggenheim/MacAndrews & Forbes, with Access winning. WMG shareholders are expected to vote on the bid on July 6, and if they approve the sale to Access, a regulatory ruling is expected by the fall.
Access is expected to be the most aggressive suitor for EMI, but the other WMG bidders are expected to be in the chase again, and UMG, Blavatnik and Alec Gores were reported to be weighing offers this week. Moreover, despite insistence by EMI management that the company will be sold wholly, if more value can be realized by selling it in pieces, it's hard to imagine Citigroup ruling out that option, regardless of EMI management's desire for the company to be sold in one piece.
Similarly, the WMG board seemed intent on selling the company as a whole, but it invited bidders to state bids for the entire company and break down those bids for publishing and recorded music. Indeed, at one point it seemed to waver and considered selling the company in parts, before ultimately choosing to sell it in its entirety.
If Universal were to bid on EMI, it is more likely it would duplicate its WMG play and bid on the recorded-music operation. Or, it could pursue the strategy that Sony followed in looking for partners to buy different pieces of the company as the major did at the end of the WMG bidding when it formed the consortium of bidder, which would have a better chance of withstanding regulatory screening.
IMPALA, the European independent music association, has already warned Warner that it would push hard to have the European Commission to thoroughly scrutinize any deal for EMI. The same would likely hold true if either Sony or Universal would bid and win to buy EMI. When Sony and BMG were being merged, it had to sell the BMG publishing unit to Universal in order to accommodate the regulatory agencies concerns over that deal.
These potential scenarios and many more are sure to play out in the coming months as EMI sizes up its suitors.