Guy Hands hatches new plan to keep EMI afloat

The tortured saga of EMI will take a new turn this week when Guy Hands unveils an eleventh-hour plan to prevent the company falling into the hands of its creditors this summer. EMI will lease the US rights to its back catalogue - typically the lifeblood of a major music label - to another industry player, most probably its perennial suitor Warner Music Group.

The deal could raise £400 million and keep leading lender Citigroup from taking control of the firm in May. It would also act as a poison pill to a hostile takeover bid by probable predators, including the US private equity firm Kohlberg Kravis Roberts.

Whoever wins the bidding would acquire the rights to sell music by the Beatles, Pink Floyd, Radiohead and Coldplay among others, but it would not acquire the more lucrative but less glamorous publishing rights to the songs.

Last night there were reports that Citigroup will try to block the arrangement, arguing that it is not in shareholders' interest for the company to acquire more debt than it already has.

But it's not a bad idea: EMI and subsidiaries including Virgin have a tough time breaking new bands or selling new or recent music in the US market. If Warner leased the music, it would place the firm one step closer to what has always been the probable solution to the EMI-Warner saga: a marriage.

It would also give Guy Hands's Terra Firma some room to manoeuvre. Hands acquired EMI in 2007 for £2.4 billion, a huge sum for the property considering the distress in the music business. But instead of expressing gratitude, the industry turned on Hands and bemoaned Terra Firma's takeover as if it had been captured by savages.

Given just how poor a business prospect recorded music has turned out to be, the widespread criticism now seems distinctly ungrateful. Hands was at least willing to seek a new way to run a business in the midst of its most intense upheaval since the advent of radio.

The deal to effectively hand over its US catalogue to a rival firm would give EMI room to catch breath. The firm has suffered a series of setbacks recently, including the resignation of its recorded music CEO and the loss of a major ruling over digital royalties in a British court battle against Pink Floyd.

Keeping EMI under Guy Hands's control may not be what many bands under contract want, but at least it keeps EMI intact for the time being. Industry watchers fear that if it fell into Citigroup’s hands, the bank would break it up for a quick sale. ·