WMG, KKR TO TEAM UP ON EMI BID?

KKR is in talks with Warner Music Group to launch a break-up bid for EMI Group, The Times of London reported on Sunday, though the story didn’t reveal the source of the info.

Giving plausibility to the report is the fact that it would be such a tidy arrangement, with KKR getting the pub industry’s biggest prize in EMI Music Publishing (valued at $1.2 billion), while WMG would get EMI Music, with its deep catalog. The record company’s value is harder to determine, noted the paper’s James Ashton: “Although it generated 55% of EMI’s £293 million [$441million] group earnings before restructuring costs last year, buyers wonder whether it has a future.”

But the two companies have no intention of bailing out Guy Hands, it appears. They have yet to contact EMI and won’t make their offer until Hands has resolved his debt issue with Citigroup, at which point—in midyear—he’ll put the entire company on the block, according to the paper.

Both divisions of EMI are preparing five-year business plans that will include profit projections but are not thought to earmark assets for disposal. Newly appointed EMI Music chief Charles Allen will aim to demonstrate how EMI has developed reliable earnings streams in areas such as digital. He will further point out that EMI can still produce hits.

The business plan will be submitted through Maltby Investments, one of EMI’s parent companies, which will mediate between Terra Firma and Citi. To give it another 12 months of breathing space, Terra needs to win the backing of 150 out of 200 investors, who have already seen their initial £1.8 billion EMI investment all but wiped out.

However, Maltby is also expected to recommend how much debt EMI can feasibly carry. If Terra Firma and Citi agree, that will pave the way for a debt-for-equity swap that is likely to hand control of EMI to Citi, which will auction off the business.

Hands, who has relocated to his tax shelter on the island of Guernsey, will find out in the next two weeks whether he must return to London for his Citi court battle.

KKR spokesman Peter McKillop declined to comment on the report.

We’ll end this with a bit of related commentary from Financial Times columnist Lucy Kellaway, pondering the differences between rock & roll and business as careers:

“While it may be deeply satisfying to aging fans to try to marry the early love of pop music with a more staid interest in business, not all the lessons are good ones. In rock, dropping down dead can be a smart move, while in business dying mid-career is rarely a good idea. There are further important differences in clothing and lifestyle. Crushed velvet has never been a good look in the boardroom; in rock and roll you go to bed at about 4 a.m., which is about the time successful executives are starting to get up…

"But the biggest dissimilarity is that in rock music you need a rock star. With business it is the opposite: things go a lot smoother without one. In 2006, Guy Hands paid far too much for EMI. The reason, according to my colleague Luke Johnson, is that deep down, Hands wishes he was Mick Jagger.”