The ongoing dysfunctional financial relationship between Guy Hands’ Terra Firma and Citigroup Inc., has been well documented. Hands purchased EMI in 2007 for about $6.67 billion dollars. As part of that transaction, Hands borrowed about $4.79 billion from Citigroup.
Almost immediately after the deal was completed, Hands began to cry foul, complaining that the bank had not acted in good faith in its dealings. However, after losing an extremely public court trial late last year, the Terra Firma leader’s alternatives are narrowing. Financial analysts believe that there is a strong likelihood that Hands/EMI will be unable to produce the $200 million necessary to satisfy the company’s agreements with Cititgroup at the end of March 2011. If that shortfall does indeed occur, then the music business would default to Citigroup. And here is where the plot gets thicker…
According to reports in the Wall Street Journal, the bank is already actively exploring options it might choose if/when the default takes place and “has already made contact with parties that could quickly snap up the historic music company—and Mr. Hands himself is even among them.” The publication asserts that Citigroup will price the sale of its foreclosed asset at around £1.8 billion.
It is confusing to imagine Hands losing the company for lack of $200 million, then circling around and buying it again for £1.8 billion pounds, but the resourceful Mr. Hands is strategizing a possible scenario whereby with help from CPP Investment Board, a Canadian pension fund firm, he might combine a bid for Warner Music Group with the EMI repurchase. Perhaps, in such a situation, Citigroup might also consider a new loan. WSJ speculates however, that odds are against Hands owning EMI a second time.
There are numerous other suitors for EMI, such as Sony Music, Universal Music Group, KKR, TV personality Simon Cowell and even Warner Music that are likely to complicate Hands’ plans. Warner announced last week it was looking to either buy EMI or sell itself. An EMI purchase would likely include a sale of Warner Chappell Music in any case to avoid regulatory concerns if WMG was to gain EMI Music Publishing.
While the winner of this complicated chess game to control EMI and possibly Warner Music Group is too cloudy to peg, its certain the value of these once-giant music industry titan companies is dropping like the proverbial rock rolling downhill.