EMI sale sweet for one mogul, bittersweet for another

By Yinka Adegoke and Nadia Damouni

Capping a six-year long pursuit, sources said Warner Music Group Chairman Edgar Bronfman Jr. appears set to win the auction for the recorded music side of EMI, allowing his tumultuous run at Warner Music to end on a victorious note.

Bronfman relinquished his CEO role at Warner Music after Len Blavatnik's Access Industries bought the label for $3.3 billion this summer and moved upstairs to the chairman's office with the sole purpose of completing a deal for EMI.

It is widely presumed that he will leave Warner Music after closing the EMI deal.

Sources said BMG Music Rights, a joint venture between private equity firm KKR and German media giant Bertelsmann, is the frontrunner to win EMI's large and lucrative publishing operation.

That would be a crushing defeat for Martin Bandier, the CEO of Sony/ATV, the music publishing joint venture between Sony Corp and the estate of pop singer Michael Jackson.

Bandier built EMI's song publishing unit from nothing into the music industry's premiere operation over 18 years before being eased out of the company in 2007. He joined Sony/ATV that same year with ambitions to eventually buy the division he led for nearly two decades.

DEAL MECHANICS

Citigroup seized control of EMI in February after its previous private equity owner, Terra Firma, defaulted on loans owed to the investment bank. The default forced Citigroup to write down the debt it held in EMI by nearly $2 billion.

The investment bank is understood to be seeking a $4 billion valuation for EMI, or roughly $2.5 billion less than Terra Firma paid for the company just four years ago. But after receiving lowball bids for the entire company, sources said Citigroup decided to sell EMI's recorded music and song publishing units separately to maximize its return.

A deal is expected as early as Friday, but could be delayed into early next week, these sources said.

An EMI representative declined comment. Representatives for all the bidders mentioned also declined comment.

Warner Music moved into the pole position for EMI's recorded music division after Vivendi SA's Universal Music Group, the world's largest record label, dropped out of the auction this week, sources said. While both labels bid roughly $1.5 billion for the unit, which counts the Beastie Boys, Coldplay and Katy Perry among its stable of artists, Universal Music balked at assuming EMI's pension liabilities.

According to sources with knowledge of the auction process, BMG and Sony/ATV each bid more than $2 billion for EMI's publishing operation, which owns the rights to more than 1.3 million songs ranging from the iconic hit "New York, New York" to Adele's recent smash "Rolling In The Deep."

These people said that BMG's bid was advantaged because of its simpler financing structure through KKR. Sony/ATV's bid relies on debt financing from UBS and equity from Abu Dhabi firm Mubdala and private equity firm Blackstone Group.

Moreover, Sony/ATV's bid has been hampered by bureaucracy in dealing with the Sony board, allowing BMG to act more nimbly, the sources said.

BRONFMAN AND BANDIER

Bronfman, the billionaire heir of the Seagram's beverage fortune, has been trying to buy EMI for years, but control issues always stood in the way of a deal. Neither he, nor the management of EMI, could ever 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 the private equity firm. The fact that Bronfman plans to leave Warner Music after the EMI deal is complete is rich with irony since it means that he won't get a chance to actually run the asset he has coveted for so long.

The outcome of the publishing division sale meanwhile features a protege trumping his mentor.

EMI Group CEO Roger Faxon, who long served as Bandier's chief lieutenant, has aligned himself with BMG and could stay on to run the business, sources said. While former and current associates of both men said their relationship is marked by mutual respect, Faxon realized that Sony/ATV winning EMI's publishing division meant that he would be out of a job.

The fact that he found a way to potentially save himself by aligning with BMG is certain to irk the cigar-chomping Bandier, who one person close to the transaction said "views Faxon as a caretaker for the asset that he built."

(Reporting by Yinka Adegoke and Nadia Damouni; Writing by Peter Lauria. Editing by Robert MacMillan)