Lombard

March 10, 2010 5:44 pm

Now to make EMI’s record a long-player

What with the loss of the Rolling Stones, the on-off sale of Abbey Road studios, and the legal infighting with Citigroup in one court and Pink Floyd in another, EMI under Terra Firma’s ownership is already the most public private equity deal ever. But the sudden departure of Elio Leoni-Sceti as chief executive of EMI Music, and his replacement by Charles Allen, adding executive powers to the chairmanship, is a new way for Guy Hands to keep the music group in the headlines.

After the biscuiteer (Eric Nicoli, ex-United Biscuits, who led the group when it was a listed company) and the detergent expert (Mr Leoni-Sceti, formerly at Reckitt Benckiser) comes the man who spent his six years at the helm of British broadcasters Granada and ITV trying to play down his reputation as a mere accountant.

Mind you, it is probably accountants that EMI needs, as it approaches a mid-June deadline for the group to raise new funds from investors.

Mr Leoni-Sceti’s official exit line is the easy-to-parody “my job here is now done”. That assertion is debatable. When he joined in 2008, the Reckitt executive was supposed to “shape, drive and lead EMI
to become the world’s most artist-focused and consumer-friendly music company”. The scratchiness of relations with established artists is a symptom of wider concern about the way Terra Firma has split artist and repertoire (A&R) executives from the marketing of albums and a sign the first goal has not yet been achieved. But short of putting Lily rather than Charles Allen in the executive hotseat, no executive change was likely to damp the divas’ distress.

The more important targets are still the operational ones. EMI Music’s higher sales, bigger market share and stronger margins – up from below 5 per cent in the year before Mr Leoni-Sceti’s arrival to nearer 15 per cent in 2008-09 – are signs of progress. Mr Allen’s goal now is clear: to sustain that record, or, as he puts it, “to ensure [EMI Music] has a great future” – or possibly any future at all.

Of Caz and carrots

The Financial Services Authority talks tough on market abuse, but so far has paraded before a disdainful City mainly unimportant, unlucky and unsophisticated insider dealers. Its satisfaction on Wednesday at being able to secure a guilty verdict against a known name – even better, one who used to work at Cazenove, bluest of the Square Mile blue-bloods – was palpable.

But the Caz connection may be the least important aspect of the case against Malcolm “Streaky” Calvert. He was, after all, a retired partner. The source of the leak could not be identified, let alone whether it came from the investment bank itself. The FSA deserves kudos for having made five of 12 counts of insider dealing stick, but more important was the fact that for the first time it cut a deal with
an individual – Mr Calvert’s friend Bertie Hatcher – who received a censure and a fine on the explicit condition that he would help with the prosecution.

As an incentive to members of insider dealing rings to break with their associates, that is more powerful than any headline-grabbing press statement. The timing is also pleasing for the FSA: US-style plea bargaining for insider dealers is due to become law next month. With that legislation on the statute book, the FSA will get a proper carrot to go with the stick it wields against market abusers.

Don’t discount Mr Smith

Two days ago, Tullett Prebon was trading at a discount to peers that looked hard to justify given the scope for Terry Smith, Tullett’s never-say-die chief executive, to realign and diversify the business. But Wednesday’s 80p surge to 390p on confirmation of takeover talks puts it on a multiple nearer 9.5 times forecast earnings for this year, against, say, Icap on a forward p/e of just over 11.

Unfortunately, that surge ignores the obstacles to a deal. Exchanges have the wherewithal to buy Tullett, but may lack the inclination. Investment banks would have the motive – Macquarie has been expanding into exchange-traded derivatives – but a takeover would allow Tullett’s rivals to vaunt their independence over Tullett’s lack of it. Competitors look either too small (GFI, whose abortive deal with Tullett two years ago stretched the definition of a “merger of equals” even then) or too large (an Icap bid would trigger concerns from regulators and customers). In any case, before rivals get together they have to find a way to get on. No wonder some surmise that the most likely bidder is one Mr Smith is certain to agree with: Mr Smith himself.

andrew.hill@ft.com

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