EMI Music Chief Leoni-Sceti to Leave Record Label (Update1)
March 10, 2010, 12:10 PM EST(Adds analyst comment starting in fourth paragraph.)
By Kristen Schweizer and Jonathan Browning
March 10 (Bloomberg) -- EMI Music, the U.K. recording company controlled by Guy Hands’s Terra Firma Capital Partners Ltd., said Chief Executive Officer Elio Leoni-Sceti will leave the company on March 31.
Leoni-Sceti, a former cleaning-products executive who used to run the European unit of Reckitt Benckiser Plc, took over in July 2008, a year after Hands’s Terra Firma paid 4 billion pounds ($5.96 billion) for the London-based company. EMI Music named Charles Allen, currently its non-executive chairman, as executive chairman. He will assume the CEO role.
The management changes come as Hands is seeking to convince Terra Firma investors to inject new capital to keep EMI afloat. Without the funding, the label may end up in the hands of creditor Citigroup Inc., which Hands is now suing, claiming the bank tricked him into buying EMI. Leoni-Sceti had been charged with devising a new business plan for EMI Music.
“It’s really quite clear that EMI is switching to Plan B or even Plan C,” Mark Mulligan, a music industry analyst at Forrester Research Inc. in London, said in a phone interview. “Digital revenues have not come anywhere close to offsetting CD sales, and coupled with the perilous financial state they find themselves in, it’s clear they have had to have a rethink.”
In a letter to Hands in October, which was part of court documents filed Feb. 4 in New York, Leoni-Sceti wrote that morale at the company had reached a low and that artists were questioning whether to stay because of negative press attention focused on EMI’s financial circumstances.
Losses
EMI, home to the Beatles, last month posted a 1.5 billion- pound annual loss and said its liabilities exceeded assets by 408 million pounds as of March 31, 2009. Terra Firma had asked EMI for the new business plan and needs the approval of 75 percent of investors to put more capital in by the end of June.
Speculation that Warner Music Group will bid for the U.K. music company has increased. Should EMI breach debt covenants, Citigroup could take control of the company and sell it to Warner Music. New York-based Warner Music made way for Hands to buy EMI after abandoning a takeover in July 2007. On Feb. 9, Warner Music Chief Executive Officer Edgar Bronfman Jr. said regulatory hurdles shouldn’t prevent his company, the world’s third-largest record label, from buying EMI.
“Terra Firma acquired EMI as an investment, not because they would like to be long-term owners,” Forrester Research’s Mulligan said. He added that EMI’s recording and music publishing businesses may be separated and sold to different companies as “there’s a rich seam of potential suitors for the music publishing division.”
Piracy
The music industry is grappling with declining CD sales amid piracy and a shift in consumer preference for digital downloads. U.S. compact disc sales fell 65 percent from 2000 to 2009, according to SoundScan. Vivendi SA’s Universal Music Group, the world’s largest record label, reported revenue fell 6.2 percent last year to 4.36 billion euros.
Pop groups Pink Floyd and Queen, which have been with EMI Music for about four decades, are in talks with other record companies to leave the label, according to two people familiar with their talks.
Allen, 53, has been non-executive chairman at EMI Music since January 2009, chairing its board and supporting the transformation of the business, the record company said in today’s statement. Allen was formerly with Granada Plc and ITV Plc.
Allen’s appointment “fits in with the Terra Firma model of bringing in outside expertise,” Forrester Research’s Mulligan said. “The executives have come from different backgrounds, I think there’s a similar thinking here.”
--Editors: Vidya Root, Simon Thiel
To contact the reporter on this story: Kristen Schweizer at kschweizer1@bloomberg.net
To contact the editor responsible for this story: Vidya Root in Paris at vroot@bloomberg.net
