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Terra Firma approached by potential backers and partners about possible EMI buy back deal

By | Published on Monday 31 January 2011


Terra Firma big cheese Guy Hands has, according to the Mail, been approached by a number of potential investors and strategic partners to discuss the possibility of the equity group keeping control of EMI, but with refinanced debt obligations through a slightly complicated relinquish and buy back arrangement.

As previously reported, it is expected that Terra Firma will have to give up ownership of EMI to the music major’s bankers Citigroup this spring, because the private equity firm’s financial backers won’t let it pump more money into the debt-laden company, meaning EMI will fail to meet covenants linked to its three billion debt to the US bank.

But it is expected that Citigroup will then sell off the music firm for the bargain basement price of £1.6 billion. And, despite the acrimonious relationship between Citi and Terra Firma, it is thought the former has already indicated to the latter that they would consider a bid from Hands et al to buy EMI back.

If such a deal was to go ahead, Hands could find himself exactly where he’s wanted to be for the last two years, in control of an EMI with much reduced debts and far more favourable loan terms. Various previous attempts to persuade Citigroup to write off some of EMI’s debts and relax the aforementioned covenants have been knocked back.

As also previously reported, EMI is actually doing pretty well day to day since Terra Firma’s painful but effective cutbacks, but the whole company continues to be hindered by its highly public multi-billion debt to a bank its parent company are suing. Remove, or rather reduce and restructure, the debt, and the British music major would look pretty good.

With that in mind, the Mail reports that a number of parties have approached Terra Firma about a buy back arrangement. The Wall Street Journal noted last week that Hands had spoken to one of Terra Firma’s existing EMI-supporting backers, Canadian pension fund CPP, but the Mail says conversations are also underway with other funds, equity groups and strategic partners. The result may be new investment into the Terra Firma fund to allow it to buy EMI back outright, or a consortium of new private equity buyers most likely led by Hands.

If this were to happen – and the proposal seems to have gone from outlandish to an actual possibility in a week – it would surely be good news for EMI, given that – unlike any deal with Warner Music or BMG backers KKR – the London-based firm would probably remain a stand-alone concern with both sound recording and music publishing divisions. This would allow Roger Faxon to put his plans for integrating those two businesses more closely into effect.