Hands Considers His Options

Having lost his high-profile and undoubtedly high-cost legal battle against Citigroup, Guy Hands is no doubt considering his options regarding trying to hang on to EMI.

One option is to appeal the ruling laid down by the Manhattan District Court Nov. 4, when an eight-person jury decided the U.S. bank didn’t mislead Hands and his private equity firm Terra Firma into over-paying for the English music company.

If that’s his intention, he’s likely to make it clear in a matter of days. One of the weaknesses in the original case was that it took him two years to make his fraud allegations against Citi.

He might also try renegotiating the terms of EMI’s £3.2 billion ($5.2 billion) debt to its Wall Street banker, but he’s failed to do that in the past. It’s doubtful if suing Citigroup for billions of dollars will make the bank more amenable to the idea. It’s only likely to write off part of EMI’s loans in a debt for equity swap.

To avoid breaching loan covenants, which has already cost Terra Firma more than £120 million, Hands needs to raise money – fast.

If he doesn’t fulfil future covenants, Citigroup would have little option but to foreclose on the loan and take possession of the company. When the bank lent Terra Firma most of the £4.2 million it bid for EMI in 2007, it would have hardly expected to end up running the company.

However, the bank has already written off the value of the loan and so breaking it up and selling it would at least give Citi a chance to claw back some of its downside. At the moment EMI is reckoned to be worth about £1.8 billion ($2.9 billion).

Warner Music Group and BMG Rights Management are among those said to be lining up bids for EMI assets.

Terra Firma can arguably sort out the financial problem for itself. It has the cash, an estimated £2.7 billion earmarked for acquisitions, but many of the London firm’s backers think the EMI deal has already cost too much.

A couple of UK business papers are saying some Terra Firma investors including Canadian Pension Plan are considering putting in a further £200 million into EMI to prevent Citi coming through the door. It remains to be seen how many of the other firms 200 or so backers will feel the same way.

Another option for a formerly successful business trying to recover from a good financial kicking is to sell off one of its better investments

The Sunday Times suggested Unfinis, a renewable energy company, could be floated at £1 billion profit for Terra Firma.
Odeon Cinemas is another investment that Terra Firma could sell for a healthy premium.