In need of a significant cash infusion, EMI Group (LSE:EMI) has been throwing around the idea of licensing its music to the North American market, which could raise up to $597.9 million for the struggling music company, owned by Terra Firma, Guy Hands company.
The terms of the purported deal would be to license the music for a period five years in America and Canada for the price mentioned above.
Citigroup (NYSE:C) has veto power over deals like the the one EMI is looking to enter into, as its assets in the United States are part of the security for the loans EMI owes Citigroup, which means EMI must gain approval from Citigroup in order to go forward on this.
America and North America haven’t been the strongest markets for EMI historically, the reason they are willing to make this type of deal, whereas they wouldn’t have to do that in their stronger markets.
Those in the industry say if this were to go forward, there are an enormous amount of issues which would have to be resolved, starting with the licensing price thrown out by EMI, which is not certain at all it would be valued at that level.
Other factors include the length of time it would take for this to be worked out, as nothing like this has ever been done on this scale in the industry, and it isn’t something that can simply be thrown out there and signed; it’ll take time to take care of the details.
The reason time is an important element in a deal being struck is the covenants of the loans by the end of March, which at this time EMI would fail after the 1.56 billion pounds loss they incurred last year. What that means is they have until the middle of June 2010 to find the needed capital to keep in line with the terms of the debt they owe.
A deal would have to be worked out before then for the company to keep in line with the terms of the loans they have on their books. It’s going to be a huge uphill climb for EMI to make it work, and even then it would have to be done in a way to satisfy Citigroup.
