EMI Almost In Terra Firma’s Hands

Despite a couple of scare stories in the Daily Telegraph and the Sunday Times, the U.K.’s only major music company is likely to be in private ownership within a matter of days.

Both papers suggested the tightening of the credit markets may scupper Terra Firma’s 265 pence per share offer for EMI, but Guy Hands’ private equity group already holds close to 90 percent of the company.

A 13.5 percent drop in EMI’s share price had the Telegraph speculating that the market may be worried the credit squeeze could cause Citigroup – which is lending Terra Firma £2.5 billion to finance the deal – may want to renegotiate the terms of the loan, but it’s looking more likely that the investment bank will go ahead as agreed.

To secure the loan on the agreed terms, Terra Firma needed agreement from 90 percent of EMI shareholders by 1pm July 29, but Citigroup looked likely to waive that proviso as the acceptance figure passed the 80 percent mark.

Terra Firma has extended the offer period to August 1 and EMI shares, which had dipped a little under 248 pence and prompted the Telegraph story, recovered to 252 pence as more stockholders decided it was time to take the money.

Four days before the new deadline, The Sunday Times ran a piece saying the flow of cheap money that’s been feeding "the voracious appetite of the global private equity machine" is drying up as banks are finding it harder to syndicate the debts.

The paper argued that the EMI deal is one of those that "teeters on a knife edge" but if – as widely expected – Terra Firma offloads EMI’s music publishing business, then a large chunk of Citigroup’s £2.5 billion funding could be repaid long before the end of the loan term.

If the ground should proverbially open up beneath the Terra Firma offer, apart from souring a client relationship that Citigroup has had with Hands since his days at the Nomura financial services group, it’s also likely to see EMI chairman and chief exec Eric Nicoli fall as fast as his company’s share price.

Although he made bullish noises in the spring concerning EMI’s ability to stand alone and trade its way out of a trough, it’s very doubtful – particularly given the failed mergers with Warner – that he’d be allowed to stay running the company if it was forced to do that.

Hands, who is open about the fact that he usually ditches the management team as soon as he buys a company, hasn’t commented on whether he sees a future for Nicoli in a Terra Firma-owned EMI.