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Jockeying goes on as Citigroup renews EMI talks with Universal

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With negotiations for the sale of EMI Group dragging on longer than a Wagnerian opera, owner Citigroup Inc. has invited Universal Music Group back to the negotiating table this week after failing to break a logjam with the previous high bidder, Warner Music Group.

Citigroup’s overtures to Universal come two months after the bank initiated a formal auction for EMI, one of the world’s oldest and largest music companies, with a roster of well-known artists, including Pink Floyd, Coldplay and the Beatles.

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Universal and Warner have been the lead bidders for EMI’s recorded music unit. The bank has also fielded separate offers from Sony Corp. and BMG Chrysalis for the company’s music publishing business, which itself could fetch as much as $2 billion. But a deal to sell the publishing division hinges on Citigroup being able to first sell the recorded music.

But those efforts have has been fraught with difficulty, largely over how to deal with EMI’s pension fund, which is said to cost as much as $600 million over the lifetime of the plan, according to executives who have knowledge of the discussions.

Officials from Citigroup and the music companies declined to comment.

Citigroup had been trying to work out the details of Warner’s bid, said to be valued at more than $1.5 billion, said those executives who did not wish to be named because of the confidentiality of the talks.

Warner, owned by Russian-born industrialist Len Blavatnik, had outbid Universal’s $1.2-billion offer, the sources said. But Warner walked away and withdrew its bid after failing to come to terms with Citigroup on the transaction, including how to handle a pension liability for EMI’s 21,000 employees.

Warner’s offer included an estimate for the pension costs, said people knowledgeable with the terms. As a result, the actual cash amount Warner offered could have been less than $1 billion.

A third bidder, billionaire Ron Perlman, has lobbed a bid valued somewhere between Warner’s $1.5 billion and Universal’s $1.2 billion offers, said people who have been briefed on the discussions. It’s unclear where Perlman’s proposal stands as Citigroup attempts to reignite talks with Universal this week.

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If Citigroup is able to pull off its auction in the next few weeks, EMI would be the second major music company to be sold this year. In May, Blavatnik’s Access Industries bought Warner Music for $3.3 billion in cash and debt.

A sale of EMI’s recorded music business to either Warner or Universal would reduce the number of major music companies from four to three -- Universal, Warner and Sony Music Entertainment -- a scenario that could raise regulatory concerns in the U.S. and in the European Union.

But with no clear agreement in the wings, those interested in knowing EMI’s fate may have to wait through a few more acts unfolding as Citigroup tries to coax more out of its bidders.

In February, Citigroup seized control of the British record company from former owner Terra Firma Capital Partners, in a debt-for-equity swap. In the same transaction, the bank wrote off two-thirds of EMI’s loans, leaving the company with roughly $1.9 billion in debt.

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