EMI is thought to be worth around US$6bn in total. How much equity Terra Firma plans to inject is not yet clear, though it does want to go ahead with the planned securitisation of the EMI’s music publishing business, the part of the EMI business the generates 75% of group Ebita.
Deutsche Bank and
Some observers have questioned whether a private equity group would actually want to see a full-blown securitisation of EMI. Duncan Warwick-Champion, a media analyst with UBS, points out that this would limit a private equity group’s room for manoeuvre. He also questions whether it would really provide significant savings on financing costs.
The final structure of the loan is still academic, as Terra Firma’s 265 pence per share bid for EMI has yet to be given full approval and Warner Music Group, which recently made a 260 pence per share bid, may come back with a higher offer.
However, the relative simplicity of the deal, compared with the regulatory entanglement that acceptance of the recent take-over offer from competitor Warner could bring, is said to be in its favour. It is also cash in hand.
EMI has net debt of £987m, of which £325m is due in May 2008. Analysts point out that, on the basis of its current performance, it is already in breach of the covenant on its Euro 2013 bonds, which have a 4x leverage covenant. However, this is a “technical difficulty”, Warwick-Champion says.