Citigroup Grabs Debt-Plagued EMI

On the brink of defaulting on loan, Guy Hands’ Terra Firma relinquishes control of music giant

Last Updated: February 1, 2011 @ 12:42 PM

Guy Hands’ battle to keep EMI appears to be over.

Citigroup seized the beleaguered EMI Group from Hands’ private equity firm, Terra Firma, on Tuesday, ending one of the entertainment industry’s most tarnished misadventures and likely striking the starting bell for an auction of the No. 4, but smallest, label-group among the shrinking record giants.

The U.S. bank took full ownership of EMI — home to such acts as the Beatles, Coldplay and Katy Perry — and immediately restructured its debt, wiping out 65 percent or £2.2 billion ($3.55 billion).

Read also: Guy Hands' $7B Acquisition of EMI Music Plays its Final Notes

EMI, which was carrying a debt of £3.4 billion ($5.48 billion), now owes £1.2 billion ($1.94 billion) — and has £300 million ($483.7 million) of cash available, Citigroup said.

Hands and Terra Firma — with the help of Citigroup — bought EMI for £4.2 billion ($6.77 billion) in 2007.

EMI said it would "continue delivering on its strategy to maximize value for the artists and songwriters it is dedicated to serving.”

The deal effectively ends EMI's tumultuous era under Hands, one that saw two of its biggest acts — the Rolling Stones and Paul McCartney — walk away, and a revolving door of sorts operating in the executive suite.

Suitors have hovered around EMI for months — and in the case of one, Warner Music Group — for years. Warner, a public company controlled by a shareholder group lead by CEO Edgar Bronfman Jr., has hired Goldman Sachs to deal either a sale of Warner or a purchase of EMI.

At the same time, the industry’s No. 1 and No. 2 music-label groups, Universal Music Group and Sony Music Entertainment also are said to be interested in EMI assets. Similarly, KKR, the private equity giant, and partner BMG, the German media giant, are interested in the EMI Publishing.

Roger Faxon, EMI’s chief executive, called the recapitalization "an extremely positive step" for the company.

"It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity," Faxon said in a statement. "With that solid footing, we are confident in our ability to drive our business forward. We have already made great progress in meeting the challenges facing our industry. The closer alliance between our two operating divisions is already delivering impressive results on behalf of the creative talent we are privileged to represent. We have a clear vision for the future, a strong and committed management team, and now the right capital and financial structure in place to deliver successful outcomes for artists and songwriters.”

Here's the release that just went out in London:

EMI ANNOUNCES SUCCESSFUL CAPITAL RESTRUCTURING, AND CHANGE OF OWNERSHIP

Debt dramatically reduced; EMI now has the financial flexibility to invest in its strategy for growth

EMI Group Ltd (“EMI”), one of the world’s leading music companies, today announces that Citigroup (“Citi”) has acquired 100% of its share capital. Immediately following the acquisition, Citi completed a recapitalisation of the company. As a result, the company’s debt has been dramatically reduced by 65% from £3.4 billion to £1.2 billion, and the company has in excess of £300 million of cash available. The new capital structure provides EMI with the financial strength and flexibility to continue delivering on its strategy to maximise value for the artists and songwriters it is dedicated to serving.

Following the appointment of Peter Spratt and Tony Lomas of PwC as administrators to Maltby Investments Limited (“MIL”), the administrators sold EMI and its immediate holding company Maltby Acquisitions Limited (“MAL”) to Citi. Immediately following the transfer in ownership, Citi effected a debt-for-equity swap to recapitalise EMI. The EMI Group continues under the same management and is now completely separate to MIL, which remains in administration. Neither MAL nor EMI were in administration during the process.

EMI has achieved creative and commercial success over the last twelve months and will continue to pursue an ambitious growth strategy.

Roger Faxon, EMI’s chief executive, said: “The recapitalisation of EMI by Citi is an extremely positive step for the company. 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. We have already made great progress in meeting the challenges facing our industry. The closer alliance between our two operating divisions is already delivering impressive results on behalf of the creative talent we are privileged to represent. We have a clear vision for the future, a strong and committed management team, and now the right capital and financial structure in place to deliver successful outcomes for artists and songwriters.”

"Citi today took ownership of MAL, the holding company that controls EMI. In the process, the previously unsustainable debt load at EMI was reduced by 65%, leaving the company with a strong balance sheet and the ability to invest in and grow its business. This is a positive development for EMI, its employees, artists, songwriters and suppliers. Our objective is to have EMI perform its absolute best for our shareholders over time. EMI is an iconic business and we are completely supportive of both its management and its strategy. It is business as usual for everyone at EMI,” said Stephen Volk, Vice Chairman of Citi, who will be the new Chairman of Maltby Acquisitions Limited.