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End of an era for EMI

After months of speculation, the legendary music company’s troubled tenure under the ownership of Guy Hands’ Terra Firma ended last week as US bank Citigroup took full ownership.

After months of speculation, the legendary music company’s tenure under the ownership of Terra Firma (whose chairman, Guy Hands, is pictured) ended last week as US bank Citigroup took full ownership, writes David Davies.

The multi-billion-debt burden of EMI had led many in financial circles to predict that Citigroup would eventually assume control of the British music major – but the changeover has happened earlier than most expected.

As a result, Terra Firma and its backers have lost the entire £1.7bn they invested in EMI. Citigroup – which helped to fund Terra Firma’s acquisition of the music group four years ago – has lost £2.2bn through the episode.

Terra Firma chairman Guy Hands’ battle to reduce EMI’s substantial debts and get the company back on track has regularly made the headlines during the last four years. EMI’s ability to retain the services of its most profitable artists was called into question by a series of high-profile departures – including Paul McCartney and Radiohead – although Pink Floyd did sign a new five-year agreement last month having resolved a long-standing dispute with the label.

A slew of restructuring initiatives saw large-scale job losses worldwide, while rumours abounded early last year that EMI was considering the sale of its remaining studio facility – and arguably greatest asset of all – Abbey Road Studios. After nearly a week of mounting pressure from industry groups and high-profile artists and producers, the label issued a statement denying any intention to sell the studios.

More recently, Hands’ US legal case against Citigroup relating to the original valuation of EMI at the time of the acquisition in 2007 ended in embarrassing failure last November – although Terra Firma lodged an appeal against the decision in January.

Now, the Hands/EMI era is over altogether with Citigroup’s full acquisition of the music group. A recapitalisation was completed immediately after the changeover, as a result of which the company now has cash reserves in excess of £300 million. The EMI Group will continue under its existing management, led by chief executive Roger Faxon.

“The recapitalisation of EMI by Citi is an extremely positive step for the company,” said Faxon. “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.”

This upbeat assessment is unlikely to curtail debate about the group’s future, however, and in the days since the deal there has been no shortage of media speculation about possible (part-)sale scenarios.