Citigroup seizes control of EMI

Article  by  Thomas BENTLEY  •  Published 08.02.2011  •  Updated 08.02.2011
[NEWS] In a seismic week of negotiations and recapitalisations, Terra Firma lost control of EMI as the label was sold to its creditors. Citigroup is now said to be looking to sell the major.
EMI has been taken over by US banking goliath Citigroup in a bid to rid the label of its financial woes.

In a matter of hours, the major changed hands and was subjected to a capital restructuring which saw previous holder Terra Firma succumb to its insolvency months earlier than predicted.

Citi was a major creditor back in 2007 when Terra Firma, Guy Hand’s private equity firm, bought the label made famous by The Beatles, Pink Floyd and The Rolling Stones for £4.2bn – a sum which has proven impossible to pay back.

The events took place as Price Waterhouse Coopers administrators Tony Lomas and Peter Spratt were called into Maltby Investments Ltd (MIL), one of EMI’s interim holding companies, on Tuesday. MIL, which was set up as part of the tiered holding structure between Terra Firma and the label alongside Maltby Capital and Maltby Acquisitions Ltd (MAL), was reported to have breached its loan facility with Citi, thus entitling the bank to reclaim the full sum owed by the private equity firm.

Deeming the sale of MIL impractical, MAL and the label were then immediately sold to Citigroup in a swift move that had not yet been unveiled to Terra Firma. The bank then recapitalised the label, reducing its debts from £3.4bn to £1.2bn – a 65% reduction which has seen EMI gain substantial financial strength.

EMI CEO Roger Faxon said that the move and subsequent financial restructuring was an “extremely positive step for the company”, adding that “it has given us one of the most robust balance sheets in the industry, with a modest level of debt and substantial liquidity”.

Unaffected by the administration of MIL and with £300 million in cash readily available alongside minimised debt levels, EMI is now in a position to refocus its attentions on its artist roster, which thinned under Terra Firma's leadership. Bands such as Radiohead left the label under the equity firm's reign, citing a loss of direction as financial worries began to take precedence.

In October, Terra Firma took Citi to court, claiming that its creditors had tricked it into overpaying for EMI. Guy Hands notably accused Citi financial advisor David Wormsley of misleading him and the equity firm regarding rival bids for the major label, which he claimed was worth three quarters of its purchase cost. A US jury dismissed the claims a month later.

Whilst EMI has come out unscathed – even better off – from a tumultuous week, it is understood that Citigroup does not wish to pursue its ownership of the label. According to a Citi insider, conversations have already taken place with “relevant majors about selling off the various parts of the company”.

Warner is said to be a current frontrunner to purchase the company, which could see its share in the global music industry rise to approximately 25%. Citi is reportedly looking to sell for a sum close to £1.9bn, which would enable them to recoup a significant portion of their losses. Interest has also been expressed over EMI's coveted publishing house, which could be sold as a separate entity.

EMI will continue running with an unchanged structure for now, as it seeks to capitalise on current financial improvements and musical successes from global sensations such as Katy Perry and David Guetta.
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