The Daily Swarm

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In 2008, Terra Firma hired the guy who ran the company which makes Cillit Bang and Air Wick to turn EMI Music around. But now the record label finds itself seeking a reported £100 million to avoid breaching banking covenants.

So now executive chairman Elio Leoni-Sceti is on his way out; he’s being replaced by Charles Allen, the former CEO of the UK’s top commercial broadcaster ITV (LSE: ITV), on March 31. Allen has chaired the board since January 2009.

EMI, in its announcement, says Leoni-Sceti, who had been CEO of household goods maker Reckitt Benckiser, “has successfully led EMI Music through the first phase of its operational turnaround” – but there’s no explanation for the change, nor what phase two involves. “My job here is now done and it is time for me to move on,” says Leoni-Sceti, who has the cover interview in Management Today.

Wall Street Journal:

Mr. Leoni-Sceti’s abrupt departure is the latest chapter in the historic music firm’s downward spiral. The company, home to acts like the Beatles and Pink Floyd, was acquired for £2.4 billion ($3.6 billion) by British financier Guy Hands’s private-equity firm Terra Firma Partners Ltd. in 2007, in large part with loans from Citigroup Inc.

In the faltering music industry, however, where recorded-music sales continue to plummet in the digital era, the deal has backfired on Terra Firma. Terra Firma has taken big write-downs on its investment, been forced to make cash injections into EMI, and now is scrambling to prevent the recorded-music unit from defaulting on its debts. It is now engaged in a high-profile legal battle with Citigroup over the takeover.

Mr. Leoni-Sceti joined EMI in 2008 from Reckitt Benckiser, a consumer-products company whose products include Lysol, Airwick air freshener and Clearasil acne cream. While Mr. Leoni-Sceti lacked music-industry experience, EMI believed that his time in the consumer products business would bring new innovations to a music industry struggling to reinvent its product.

Under Mr. Leoni-Sceti, EMI has slashed costs and sought greater efficiency. But the cutting had disrupted its relationships with music artists, making it more difficult to sign and retain talent.

Media Memo:

… in retrospect it doesn’t really matter who Terra Firma brought in to run the company — the investment group’s big mistake was paying too much for EMI, using too much debt, in 2007.

At this point the real question for EMI isn’t who runs it, but who owns it. There’s a decent chance that Terra Firma will breach a banking covenant in the coming months and that control of EMI will go to Citigroup©, which owns most of the label’s debt.

The conventional wisdom is that part or all of EMI will end up in the hands of longtime Warner Music Group (WMG) sooner or later.