Hands Moves While Clock Ticks

Terra Firma chief Guy Hands has a couple of days to convince his EMI investors to raise the £105 million needed to avoid losing control of the company.

He needs to secure the backing of 75 percent of the 200 or so investors by May 14, the date Terra Firma must submit a “compliance certificate” to Citigroup showing EMI can meet the terms of its £2.6 billion loan.

The talks on the last-ditch financing of the UK’s only surviving major music company comes as Queen, one of EMI’s top acts for almost 40 years, prepares to defect to arch-rival Universal Music.

Paul McCartney, Radiohead and The Rolling Stones have already jumped ship.

The UK’s business pages are split between those reporting Hands has already secured a verbal agreement from enough investors to raise the £105 million needed to keep control of EMI, and those citing Citigroup sources suggesting the vote will be extremely close.

If Hands can’t persuade investors to put their hands in their pockets, Citigroup can move toward repossessing EMI, which would set the stage for the company to be broken up and sold.

The New York Post pointed out Edgar Bronfman Jr.’s Warner Music Group has always been seen as the frontrunner to snap up the beleaguered British company, although it also said it may face some competition in pursuit of its struggling rival.

“We are in a position that allows us to seize every opportunity in the market – including EMI,” Sony Music boss Rolf Schmidt-Holtz told German newspaper Frankfurter Allgemeine Sonntagszeitung, as the Japanese-owned company announced that last year its music business made about $500 million.

However, both Sony and Warner may have problems with gobbling up EMI. Sony has 29 percent of the U.S. market and monopolies officials may take a dim view of it acquiring the UK company’s 9 percent stake.

Warner may also face antitrust issues if it tried to take EMI lock, stock, and barrel. It’s also carrying a sizable debt load, which could be a problem if it needs to borrow more to finance the purchase.

If Citi were in a position to take control, it could do so by June 14. However, bank officials played down a Sunday Times report suggesting it’s already briefing restructuring firms in case it needs to take immediate control.

“Citi is not in talks with any prospective buyers for any part of EMI. Citi holds EMI debt but does not hold EMI equity,” a Citi spokesman told the London paper.

EMI parent company Terra Firma has soured relations with Citi by suing it for allegedly misleading it over the sale of EMI in 2007.
The bank is thought already to have had contact with KKR, the private equity group, and Warner Music, which are reportedly interested in EMI’s publishing arm and recorded music business, respectively.

Citi chairman Dick Parsons was head of Time Warner when it sold its music arm to Bronfman.