According to the Telegraph, it was Universal Music that ended up with EMI’s liability for the leases on 40 HMV stores, something that could become a £150 million problem if the entertainment retailer was to go under in the new year.
EMI committed to guarantee about 40 HMV leases when the retail firm, previously a division of the music major, was spun off as an independent business in 1998. Given HMV’s precarious financial position for a few years now, who should take on that liability was one of the sticking points when Citigroup was negotiating the sale of the EMI record company and music publishing business to Universal Music and a Sony-led consortium respectively in 2011.
It wasn’t completely clear who was saddled with the HMV liabilities once the EMI sale was completed, though it always seemed most likely Universal would have taken them on as part of its £1.2 billion takeover of the EMI labels, and according to today’s Telegraph that is indeed what occurred. That new liability for Universal, which the Telegraph reckons could cost up to £150 million if HMV was to go into bankruptcy, may be another reason why the major was so willing to revamp its supplier agreement with the flagging retail firm, assuring HMV shops can get plenty of stock without big upfront costs.
Before Christmas, HMV admitted that it was likely to break banking covenants in January after continued disappointing sales in its high street stores. Negotiations are ongoing with the firm’s money-lenders, but Wall Street investment firm Apollo Global Management is buying up HMV’s debts with unknown intent. With only its stake in 7Digital left to sell, HMV faces some of its biggest challenges yet in the first quarter of 2013.
All of which could make Universal’s HMV lease liability expensive if the entertainment retail firms falls and no alternative takers could be found for the forty guaranteed stores (which, given the current state of the British high street, could well be the case). Given Universal Music UK’s apparent belief in the importance of a high street presence for the British record industry, coupled with its lease liabilities, some are speculating that, if HMV was to go under, the mega-major might consider taking over the running of the stores it is liable for directly, either by acquiring the HMV brand, or by launching standalone UMG stores.