This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Business News Labels & Publishers Top Stories
Could Terra Firma buy EMI back off the bank?
By CMU Editorial | Published on Monday 24 January 2011
If and when – and everyone still seems to think it’s “when” – Citigroup seizes ownership of EMI from Guy Hands’ equity outfit Terra Firma later this spring, one of the potential buyers for the London-based music major that they may enter into negotiations with might be, erm, Guy Hands’ equity outfit Terra Firma. Well, that’s according to the Mail On Sunday.
As much previously reported, EMI will need a new £100 million cash injection from Terra Firma this spring if it is to meet financial performance covenants linked to a three billion pound debt to Citigroup, a debt created by the equity firm when it bought the music major in 2007. Everyone seems convinced Terra Firma’s backers won’t let Hands provide any new cash injection, allowing Citigroup, under the terms of its loan to EMI, to take control of and then sell the music company.
It’s long been mooted that, if and when such a sale occurred, Warner Music would bid for the EMI record company, while BMG co-owners KKR would buy the EMI music publishing operation. Though that prediction has been confused in recent months, partly because BMG boss Hartwig Masuch has expressed an interest in the EMI recordings catalogue rather that its publishing business, and partly because Warner Music’s owners have hired bankers Goldman Sachs to investigate the possibility of selling some or all their company to KKR.
That said, it is thought Citigroup is still talking to both Warner Music (via Goldman Sachs) and KKR about them buying some or all of EMI. But now, the Mail says, Terra Firma itself has also been invited to bid to buy the music firm back. Given it is thought EMI will fetch about £1.5 billion in any 2011 sale, that would basically enable the equity group to keep ownership of the music firm while cutting its debt liabilities in half.
Of course, such a deal would only really be of value to Hands and his backers if they believed EMI had the potential to double in value in the next few years. So that a future sale of the company could pay back both the £1.5 billion needed to buy the firm from Citigroup now, and the £1.5 billion Terra Firma has already sunk into the music company.
Even if Hands himself really does buy EMI CEO Roger Faxon’s grand plan for turning the company around, it’s doubtful his backers would be willing to take such a risk, even with the carrot that such a deal might allow them to claw back that investment they have made into EMI to date, an investment that they will be forced to write off when Citigroup takes control.
But if the bankers seizing control of EMI later this year did result in this kind of deal, well, that would be an extraordinary turn of events, especially given the ongoing acrimony between Terra Firma and the US bank stemming from last year’s court battle over the latter’s role in the former’s 2007 purchase of the music major. And if, as the Mail claims, such a deal is even a possibility, well, perhaps EMI will still exist as a stand alone business led by Faxon by the end of the year after all.
