Citigroup snatches EMI from Guy Hands

LONDON Tue Feb 1, 2011 2:24pm EST

LONDON (Reuters) - Citigroup took control of troubled music company EMI from private equity owner Guy Hands on Tuesday, bringing an end to a long ownership battle and teeing up the firm behind Coldplay and The Beatles for its next possible sale.

Hands, one of the most high-profile private equity bosses in Europe, bought EMI, also home to Kylie Minogue and Tinie Tempah, at the height of the buyouts boom in 2007 for 4 billion pounds ($6.4 billion), with Citigroup underwriting all the debt.

From the start he rubbed members of the industry up the wrong way, sacking thousands and telling artists they needed to work harder.

At a meeting held in central London to inform staff of job cuts, the burly and bespectacled Hands had to be escorted into the building by his advisers past jostling camera crews and employees.

More seriously, he then fell out with his financial backers as he battled to keep the music group within the ever-tightening terms of its debt. As relations deteriorated, he then sued Citigroup, claiming he had been duped into bidding so much in the first place. He lost and has appealed.

A source familiar with the situation told Reuters Citi did not see itself as a long term owner but said it was in no rush to sell the business. It could place the company in one of its own private equity arms before drumming up support for a sale.

It has written off most of the debt in a debt for equity swap.

"EMI is an iconic business and we are completely supportive of both its management and its strategy," said Stephen Volk, vice chairman of Citi. "It is business as usual for everyone."

EMI has steadily improved in recent years, with stronger artists performing in the United States and Europe, and the publishing business is still the jewel in the crown.

Warner Music Group, which has held a series of takeover talks with EMI over the last 10 years, is widely seen as the most likely suitor for the recorded division.

Those likely to be interested in the publishing division, analysts say, include the joint venture between private equity firm KKR and Bertelsmann, pension funds and Sony/ATV Music Publishing, a venture between Sony Corp and the estate of late pop star Michael Jackson.

"You would think they want to monetize their piece of EMI as quickly as they can but the counterforce to that is they don't want to liquidate at the bottom," said Bishop Cheen, a fixed income media analyst at Wells Fargo.

"It could be worth more over an acceptable period of time."

Citigroup, which provided 2.6 billion pounds of debt for the 2007 buyout of EMI, wrote off most of EMI's loans after the investment vehicle set up by Hands' Terra Firma defaulted.

Following the deal, the company's debt has been cut by 65 percent from 3.4 billion pounds ($5.47 billion) to 1.2 billion pounds, and the company has in excess of 300 million pounds of cash available.

EMI's management welcomed the change.

"The recapitalization of EMI by Citi is an extremely positive step for the company," Chief Executive Roger Faxon said in a statement.

"It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity. With that solid footing we are confident in our ability to drive our business forward."

EMI said it would continue under the same management. PwC said it was appointed as administrator after the Terra Firma investment vehicle defaulted on its loan facilities.

"A breach arose because of the sheer weight of debt and the prospect of that debt ever being repaid," PwC said.

"The company directors acknowledged this default and sought insolvency protection," it added.

Terra Firma said it was pleased that EMI's debt burden had been reduced, without commenting further.

(Additional reporting by Simon Meads and Sarah White in London and Yinka Adegoke in New York; Editing by Alexander Smith, Greg Mahlich)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.