Citigroup, Hands’s EMI Talks Said to Have Failed Over Valuation
Terra Firma Capital Partners Ltd Founder Guy Hands
Fabrice Dimier/Bloomberg
The talks were held days before the firms went to trial in Manhattan federal court over claims by Terra Firma that Citigroup tricked its chairman, Guy Hands, into overpaying for EMI.
The talks were held days before the firms went to trial in Manhattan federal court over claims by Terra Firma that Citigroup tricked its chairman, Guy Hands, into overpaying for EMI. Photographer: Fabrice Dimier/Bloomberg
Citigroup Inc. and buyout firm Terra Firma Capital Partners Ltd. disagreed on the value of EMI Group Ltd. by about 500 million pounds ($800 million) during talks last month to restructure the music company’s debt, people with direct knowledge of the matter said.
The rift, which has yet to be settled, prevented the firms from deciding how much equity Terra Firma should provide, the people said, asking not to be identified because the discussions were private. The talks were held days before the firms went to trial in Manhattan federal court over claims by Terra Firma that Citigroup tricked its chairman, Guy Hands, into overpaying for EMI. Hands, 51, lost the suit, which Citigroup has called a “misguided attempt” to gain leverage in the talks.
Hands valued EMI, which holds rights to Beatles songs, at about 1.5 billion pounds including debt and equity, said one person, who is familiar with his thinking. Citigroup, which financed the purchase, put the valuation at 2 billion pounds or more, said another person, familiar with the bank’s position. With the uncertainty of a suit removed, Citigroup may be able to harden its stance.
“Any discussions that took place here are clearly irrelevant now that the case has been decided in our favor,” said a Citigroup spokeswoman, Danielle Romero-Apsilos, declining to discuss the New York-based bank’s pretrial offer. “These discussions are subject to strict confidentiality undertakings, and therefore we will not be providing any comment on them.”
Queen, Paul McCartney
Terra Firma bought EMI -- which also owns rights to music by Pink Floyd and Deep Purple -- at the height of the buyout boom in 2007 for $6.7 billion. At trial, Terra Firma claimed at least $8.3 billion in damages, saying it would have paid less for EMI had it known another firm decided not to bid.
Since Hands took over, musical acts including Queen, Paul McCartney, and the Rolling Stones have left the label. The company slipped from a profit of 86 million pounds in fiscal 2006 to a loss of 1.57 billion pounds in 2009. Resetting EMI’s valuation is a starting point for determining how much additional equity London-based Terra Firma must inject or concede to Citigroup to satisfy the bank, the people said.
The two sides have broken off talks, the people said. Discussions may resume later this year or early in 2011, in advance of a March 31 financial test that EMI must pass in accordance with the loan terms, they said. While Terra Firma is current on its loan payments, EMI is likely to fail the March test, which might trigger a default and pave the way for a Citigroup takeover, they said.
In one scenario discussed during talks, Citigroup would have written down the debt to 1 billion to 1.1 billion pounds, the people said. Hands didn’t want to inject more than 500 million pounds, the person familiar with his position said. The bank wanted at least 900 million pounds of new equity, the other person said.
“EMI is what EMI is,” Hands said of the transaction yesterday during an investor conference in Paris. “Regardless of the court result, all I can say is there is always the next deal, and that is my main focus now.”
To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net.
To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Edward Evans at eevans3@bloomberg.net.
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