EMI Group Ltd: a world famous music company founded in 1931 whose logo has been on almost all the famous records since my childhood. This was a company that worked. This was a brand that I envied until I saw the news today. I start the commentary with a summary of the article that lead me to this spread:
On February 2nd, 2011 Bloomberg reports, EMI Group’s assets have been seized by Citigroup after it failed to comply with the covenants (rules) of its Credit Agreement with the bank. The company has been stripped off its rights to the Beatles and Pink Floyd to pay off some of its multi-billion debt.
It saddens to read about EMI’s fall. It makes me sick to see the tone in the quotations, mentioning the company’s takeover by Citigroup as a natural course in how global businesses are run in today’s world. I do not accept this trend and I am utterly ashamed by the financial world’s blood-sucking involvement in every precious idea we create with bare hands. Thanks to my previous analyst position at Debtwire, I have the skills to comfortably interpret the ungoing credit abuse.
EMI’s skydive to disaster started in 2007 when it was taken private through a USD 6bn deal with Terra Firma, a leveraged buyout firm. The company then took on an enormous amount of debt through its buyer to be able to finance the deal, making it vulnerable to Titanics of the financial world (ex: Citigroup).
EMI was purchased by Terra at a time of transition. There was a huge shift in how listeners interacted with the music world. What was once on CDs and DVDs was now on MP3 players and computers. There was an enormous drive to online digital world and EMI wasn’t fast enough to stay afloat the current. Despite this problem in speed, the company would have stayed strong with its diverse record base and worldwide famous brand. Yet again the disastrous leveraged buyout idea was there to destroy any signs of survival. The virgin balance sheet of EMI, clear of any heavy debt, would soon be raped by the carefree hunks of the financial world.
Here we are in 4 years (2007 to 2011). We have EMI begging to find a new buyer for USD 2bn and cover its out-of-control debt. This blinding lust for unlimited growth and monopoly never ceases to exist and this company’s current story is an example to that. The Bloomberg article reveals that Warner Music, also looking for a suitable buyer, is struggling to buy its USD 2bn rival with only USD 500m cash on its balance sheet (meaning it will seek credit to complete the deal).
Why can’t today’s companies give up a few years of temporary fame for sustainable growth and continuity? There is enough demand to leave both EMI and Warner a nice chunk of the cake. Why why why do we have to spend more than we have knowing that it will only cause us trouble at the end? I guess I would solve the biggest problem of the capitalist world if I answered that question. In the meantime, another respectable company has been brought down through unsustainable ideals and expectations. EMI has been used, profited from and left to rot. It might be too big to disappear, but I assure you that the sprit that brought in records like Beatles has long been gone from this legendary company.
