Last updated: November 11, 2011 10:48 pm

Citigroup agrees sale of EMI for $4bn

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Citigroup is to reap $4.1bn from the sale of EMI, home to Kylie Minogue and Katy Perry, after Universal agreed to pay $1.9bn for the company’s recorded music business and a Sony-led consortium offered $2.2bn for the publishing unit.

V ivendi’s Universal Music, home to Lady Gaga and Justin Bieber, will pay $1.9bn for EMI’s recorded music business or seven times earnings before interest depreciation, tax and amortisation, a price tag that sees Citigroup recoup more of its investment in the British music group than expected.

The deal brings together the industry’s most celebrated record labels under one roof from Blue Note, EMI Classics and Parlophone to Island Records, Mercury and Polydor. The enlarged Universal Music group will account for a third of all music sales worldwide.

But Universal announced plans to sell off £500m of non-core assets to lower the cost of the deal and smooth its path past regulators and said the disposals would lead to an ebitda loss of around €25m-€35m this year.

Jean-Bernard Lévy, chief executive of Vivendi, welcomed the conclusion of the long-running talks: “We are very proud to welcome EMI into the Vivendi family. We all respect the labels within EMI as well as the artists and employees who contribute to its success. They will find within our group a safe, long term home, headquartered in Europe.”

Mr Levy said Universal expected to achieve annual synergies of £100m and that the deal would be accretive to Vivendi’s earnings per share “as soon as year one before restructuring”.

The deal is expected to face hostile lobbying, notably in Brussels, where Impala, the trade association for smaller independent labels, has stated its opposition to any deal that would strengthen Universal. Universal said it had assumed full regulatory risk but no pension liabilities in the UK.

Universal will now have to file for regulatory clearance in the EU, US, Japan and Australia. The group will pay Citigroup £1.1bn no later than 10 months from now, whether or not regulators clear the deal, and the final £100m when it completes the deal.

Lucian Grainge, chief executive and chairman of Universal Music, said: “For me, as an Englishman, EMI was the pre-eminent music company that I grew up with. Its artists and their music provided the soundtrack to my teenage years. Therefore, UMG is committed to both preserving EMI’s cultural heritage and artistic diversity and also investing in its artists and people to grow the company’s assets for the future.”

Roger Faxon, who ran EMI Music and EMI Music Publishing, looks likely to leave the company when the deal is completed, according to one person familiar with the process. Mr Faxon famously said last year that splitting the company in two “simply would not work”.

Stephen Volk, chairman of EMI Group and vice-chairman of Citigroup, said: “We are grateful to Roger Faxon, his management team and all of EMI’s staff for the continued success of this business during Citi’s ownership.”

Guy Hands and his private equity team at Terra Firma bid £4.2bn for EMI in 2007 but were unable to meet the payments on loans provided by Citi to finance the deal. The US bank finally seized EMI in February and has spent most of the time since then running an auction to sell the UK group.

Victory in the EMI recorded music auction is a coup for Mr Grainge and will extend his group’s lead over rivals Sony Music and the much smaller Warner Music, owned by Len Blavatnik’s Access Industries.

The parallel auction of EMI Music Publishing has been won by Sony which has lined up financing from a consortium led by GSO, the leveraged loan business of Blackstone.

Citigroup was EMI’s main bank for several years before its sale to Mr Hands. That deal, on the cusp of the credit crunch in 2007, left the bank unable to syndicate its £3.4bn of loans. In February, it wrote the debt down by £2.2bn to £1.2bn, putting £500m of equity in the capital structure, but it is not known what valuation the bank has put on the loans in its books.

Additional reporting by Daniel Schäfer in London

This article has been amended since original publication to reflect the fact that Universal will have to pay Citigroup £1.1bn.

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