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Home / Business

Pink Floyd may go before EMI hits the wall

By Kristen Schweizer and Adam Satariano
Bloomberg·
11 Mar, 2010 03:00 PM4 mins to read

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Pink Floyd and Queen, bands that have been with EMI Music for about four decades, may head for the door, according to sources, as concern mounts about the UK record label's finances.

Pink Floyd, whose catalogue includes such albums as Dark Side of the Moon and The Wall, and Queen,
with their best-selling single Bohemian Rhapsody, have met other major record labels about leaving, said the sources, who spoke on condition of anonymity because the discussions are private.

Guy Hands, whose Terra Firma Capital Partners bought EMI for £4 billion ($8.6 billion) at the height of the buyout boom in 2007, has until June to convince the firm's investors to inject new capital to keep EMI afloat.

Without that funding, EMI might end up in the hands of creditor Citigroup and might merge with a rival, analysts said.

"This is how a company implodes," said Claire Enders, a former EMI executive and the head of Enders Analysis, a London-based music and entertainment research firm.

EMI rivals Universal Music Group, Sony Music Entertainment and Warner Music Group were probably courting the label's top artists such as Lily Allen and Katy Perry, she said.

Adding to the turmoil, Hands is suing Citigroup, saying the bank tricked Terra Firma into buying EMI in 2007.

And EMI chief executive Elio Leoni-Sceti yesterday announced he will leave on March 31. Leoni-Sceti drove a cost-cutting programme and said his job "is now done." Former ITV boss Charles Allen is being put in charge as executive chairman.

In a letter to Hands, part of court documents filed last Month in New York, Leoni-Sceti wrote that morale at the company had reached a low and that artists were questioning whether to stay.

EMI is in talks with artists, "all of whom are questioning to some degree whether it is wise to continue a relationship with EMI", Leoni-Sceti wrote in the October letter, saying their concerns were sparked by a Citigroup report on EMI's prospects.

Leoni-Sceti was named to the top job by Hands in July 2008 with no music industry experience.

Pink Floyd, who first signed with the label in 1967, last year sued EMI and Terra Firma for what they said were miscalculated royalty payments. Queen signed with EMI in 1972.

EMI's management style since Hands took over sparked outbursts from several top artists, including Lily Allen and Joss Stone. Industry executives have accused Hands of running the label like a hedge fund rather than a creative shop.

Terra Firma's acquisition of EMI Group just weeks before the credit markets collapsed in 2007 was the firm's largest. Hands started the firm in 2002, raising €2.1 billion for investments such as the German rest-stop chain Autobahn Tank & Rast Holding.

Radiohead and the Rolling Stones abandoned EMI when Hands took over, and as contracts with Pink Floyd, Queen and Robbie Williams come up for renewal, EMI faces the prospect of one or all leaving.

EMI Grammy Award winner Joss Stone last month asked on her web page: "What manager will want their band signed to a company which might not exist in its current form in a year's time?"

"The mistake Hands made is basically coming into a business he didn't fully understand," said Colin Lester, who signed the Arctic Monkeys and Travis.

EMI, home to the Beatles, last month posted a £1.5 billion ($3.2 billion) annual loss and said its liabilities exceeded assets by £408 million as of March 31, 2009.

Terra Firma has asked EMI for a new business plan and needs the approval of 75 per cent of investors to put more capital in by the end of June.

Speculation that Warner Music will bid for the UK music company has also heated up. Should EMI breach debt covenants, Citigroup could take control of the company and sell it to Warner Music.

New York-based Warner Music made way for Hands to buy EMI after abandoning a takeover in July 2007.

To cut debt, EMI considered selling Abbey Road Studios, where the Beatles recorded most of their songs, only to withdraw the plan last month after a public outcry led to the site being put on a protected list by English Heritage.

- BLOOMBERG

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