This case examines the April 2007 decision of British music company EMI to suspend its annual dividend as the company struggled to respond to the effect of digital audio distribution on its core business. The EMI case is intended to serve as an engaging introduction to corporate financial policy and themes in managing the right side of the balance sheet. The case contrasts EMI's storied success with artists such as the Beatles, the Beach Boys, Pink Floyd, and Norah Jones with its recent inability to succeed in financial markets. In light of takeover threats and restructuring costs, EMI's CFO Martin Stewart must recommend EMI's dividend policy.
The case serves to accomplish the following teaching objectives: --Introduce the topics of financial policy, such as dividend policy and debt policy --Motivate the tension between investment policy and financial policy with respect to the sources of uses of cash --Prompt the Modigliani-Miller intuition of financial policy irrelevance and homemade dividends --Discuss the ways in which CFOs add value to firms --Review the mechanics of corporate dividends