A rebel shareholder in EMI has demanded that the embattled music major put a value on its catalogue of over a million songs, prompting an angry response from the British company.

Eclectica, a hedge fund with a half a per cent interest, wants EMI to follow its smaller rival Chrysalis by hiring a bank to value its catalogue formally for investors — which could put it at close to £3 billion.

Hugh Hendry, the chairman of Eclectica, said: “We believe the exercise could show that the entire current market value of the company is accounted for by its music publishing arm, which means you get recorded music for nothing.”

EMI is worth £1.7 billion at yesterday’s 221½p, but that figure is reduced by an estimated £1.2 billion of debt.

The company’s separate recorded music arm is worth about £400 million, which means that its song catalogue would have to be valued at above £2.5 billion to boost the current share price.

“EMI’s lack of transparency is creating valuation uncertainty and excessive share price volatility,” Eclectica said in a letter sent yesterday to the company’s chairman, John Gildersleeve, in which the hedge fund voiced concerns about two recent profits warnings.

EMI, however, responded aggressively to the situation, saying that it was “a bit confused about Eclectica’s call for transparency”. It argued that it did reveal some of the figures the hedge fund wanted, and added: “We have not seen his letter; perhaps it has been sent somewhere else?”

Chrysalis, which owns copyrights to songs by David Bowie, Blondie and OutKast, was the first music company to value its publishing catalogue in 2001 — when it launched a scheme to securitise the future cashflows of the asset.

The music and radio group redid that exercise this year, and disclosed that its publishing catalogue was worth £190 million — after a valuation from Houlihan Lokey, the investment bank. Its income after payments to songwriters — known as its “net publishing share” (NPS) — was £11.3 million, and its profit margin is between 25 per cent and 30 per cent.

Mr Hendry believes those figures can be used to illustrate the value of EMI. The British company owns the world’s largest catalogue of song copyrights, including the Tamla Motown hits and songs written by Mick Jagger and Keith Rich-ards, which generated £419.6 million last year.

EMI does not disclose its NPS precisely, although in Chrysalis’s case the figure is calculated after payments made to artists.

The British company does say artist payments take up 54.8 per cent of its revenues from its songwriting catalogue, leaving 45.2 per cent for itself — equating, in theory, to £189.7 million last year.

Chrysalis’s catalogue is valued at 16.8 times NPS, although its valuation is likely to be inflated because of the possibility of a takeover. At the Chrysalis multiple, EMI’s massive catalogue could be worth £3.2 billion, although a more modest 14 times would value it at £2.65 billion.

Mr Hendry has previously demanded that he be given a seat on the board at EMI and called for the head of Eric Nicoli, the company’s chief executive, but these demands were not in the letter to Mr Gildersleeve.

Two-track

The two halves of EMI

Recorded music: operating profit £145.1 million

Music publishing (song catalogue): operating profit £105.4 million

EMI Music Publishing breakdown

Revenues: £419.6 million

Amount paid to songwriters: 54.8 per cent

Administration: 20.1 per cent

Profit margin: 25.1 per cent

Net publishing share: Share of income for music company after paying songwriters

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