Hands Interested in EMI for Less Than Citigroup Seeks at Auction
“It’s a question of price,” Hands said in a speech to business owners in Guernsey on Feb. 8, his first public appearance since losing his stake in EMI. “Terra Firma and Citigroup agreed on what EMI was worth back in 2007. We clearly both got it wrong. Now, we disagree quite strongly about what it’s worth,” he said. “They are going to auction it, and we will see if they can get more for it than we offered.”
Citigroup took control of the 114-year-old company after it struggled to meet the terms of loans used to finance its acquisition by Hands’s Terra Firma Capital Partners Ltd. The New York-based bank, which financed Hands’s 4 billion-pound ($6.5 billion) leveraged buyout in 2007, may sell EMI, the record label of the Beatles and Pink Floyd. Warner Music Group Corp. and BMG Rights are among bidders that have expressed interest in EMI’s publishing and recorded assets.
“We got convinced that if EMI is split up between publishing and recording, it will die as a company,” Hands said at the dinner for 70 people organized by the Young Business Group of Guernsey. “You’ve really got to keep the two together so that you have the stability of publishing’s earnings versus the volatility of the recorded music division.”
Hands didn’t detail how he would fund any acquisition of EMI. Terra Firma, which raised a 5.4 billion-euro ($7.4 billion) pool in 2007, has about 2 billion euros left to invest.
Hands sued Citigroup last year, saying it had tricked him into buying EMI, and sought extra cash from his backers to stop the label breaching debt covenants to avoid losing control of his most high-profile investment. In October, on the eve of a New York court battle between Hands and Citigroup, the two failed to reach an accord to cut the music company’s debt because they disagreed on its value. Hands, who lost the case, has filed an appeal.
A Citigroup spokesman in London declined to comment on Hands’s remarks. The lender took a 2.2 billion-pound writedown on the loans it provided for EMI, Europe’s biggest by a lender to a leveraged buyout.
The 51-year-old said he was unprepared for the attention his involvement with EMI generated, and some of his investors indicated they’d rather he hadn’t taken the position.
“It would take a lot to get me to do another deal which is as public as this,” Hands said at the dinner at the Farmhouse Hotel, St. Saviour. “I’ve had very little sympathy for rock stars before buying EMI. Now I have enormous sympathy for them and all those who find themselves in the public eye.”
Hands and his team had a difficult choice as to who would run the company after they fired EMI’s managers, he said. He appointed himself chairman.
‘In Front Line’
“You don’t normally put your general in the front line,” Hands said. “You try and protect your general and have someone else take the heat.”
Under Hands’s ownership of EMI, acts including the Rolling Stones, Radiohead, Queen and Paul McCartney quit the label. EMI slipped from a profit of 86 million pounds in fiscal 2006 to a loss of 1.57 billion pounds in 2009, as teenagers turned to file-sharing Web sites that give them free music downloads. That loss narrowed to 512 million pounds in the year ended March 2010, and Hands defended his moves to cut costs at EMI.
“We took out about 2,000 people,” he said. That “annoyed a lot of people, but saved an awful lot of money.” Mick Jagger pointed out to him the numerous “pretty girls carrying water bottles” for artists at concerts, and the number of people at EMI doing things relevant in the 1970s but not in 2007, Hands said.
The loss of the investment in EMI may limit his ability to raise future leveraged buyout funds, Hands said. The deal “polarized investors and potential investors,” he said an interview after the speech. “Terra Firma will raise another fund, and we would expect it to be smaller than last time.”
Hands, who moved to Guernsey two years ago to become a tax exile, said last year his decision had proven a “burdensome option for me and my family.” Now, he said he is happy to have swapped a two-and-a-half-hour daily commute to and from London for yoga and pilates, and shares his personal trainer with Formula One racing champion and Guernsey resident Jenson Button.
“Problems can be opportunities,” he said as he offered business advice to his audience. “Things go wrong. Get used to it.”
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