Published: 05 Nov 2010
Last Updated: 03 Oct 2011
Guy Hands, the outspoken boss of private equity company Terra Firma, has lost his battle with Citigroup over his £4.2bn takeover of EMI in 2007. In a unanimous verdict delivered last night, a jury decided that David Wormsley, a friend of Hands’ who worked for the bank, hadn’t purposefully tricked him into paying over the odds for the label. It’s an embarrassing defeat for Hands, whose decision to take the bank to court was a fairly high-risk strategy to begin with. Now, Hands is left with a decision over what to do next with the label – restructure, or just give up?
Citi’s argument throughout the case was that this was just a last-ditch attempt by Hands to avoid facing the banking covenants the label is poised to break in the next few months. In a deal which may go down in history as one of the worst in the pre-recession boom years, Hands had borrowed £2.6bn from the bank in order to buy the company, and, having discovered that its true value is more like £1.8bn, is now struggling to pay it back. To make things worse, the deal was made just before the credit crunch – which meant that Citi couldn’t sell the debts on and was left shouldering the burden.
What’s going to happen to the label now is anyone’s guess. Hands has various options: in one scenario, he could negotiate a sale of the company to a rival like Warner, which has been itching to take on its British rival for a while. Another option is to just give up and hand EMI over to Citi in its entirety – although given that between 60-70% of his own cash is tied up in the company, it wouldn’t just be a humiliating defeat, it would put a serious dent in his wealth, too. Some analysts have suggested that he might want to negotiate a debt-for-equity swap with Citi, which would leave him with a tiny slice of the company – but would allow him to save face. Although, given that he just attempted to sue Citi for several billion pounds, sitting around a negotiating table may prove too awkward a prospect.
If Hands does choose to sell EMI, it may come as a bit of a relief to some of the label’s artists, many of whom fled the label as soon as it became clear that his knowledge of the music industry was limited, at best. In one notorious incident, Hands lambasted the company for wasting £200,000 a year on ‘fruit and flowers’ – blissfully unaware that it was a euphemism. When that crops up on a rider, the sweet smell of carnations is far from its artists’ minds…
Citi’s argument throughout the case was that this was just a last-ditch attempt by Hands to avoid facing the banking covenants the label is poised to break in the next few months. In a deal which may go down in history as one of the worst in the pre-recession boom years, Hands had borrowed £2.6bn from the bank in order to buy the company, and, having discovered that its true value is more like £1.8bn, is now struggling to pay it back. To make things worse, the deal was made just before the credit crunch – which meant that Citi couldn’t sell the debts on and was left shouldering the burden.
What’s going to happen to the label now is anyone’s guess. Hands has various options: in one scenario, he could negotiate a sale of the company to a rival like Warner, which has been itching to take on its British rival for a while. Another option is to just give up and hand EMI over to Citi in its entirety – although given that between 60-70% of his own cash is tied up in the company, it wouldn’t just be a humiliating defeat, it would put a serious dent in his wealth, too. Some analysts have suggested that he might want to negotiate a debt-for-equity swap with Citi, which would leave him with a tiny slice of the company – but would allow him to save face. Although, given that he just attempted to sue Citi for several billion pounds, sitting around a negotiating table may prove too awkward a prospect.
If Hands does choose to sell EMI, it may come as a bit of a relief to some of the label’s artists, many of whom fled the label as soon as it became clear that his knowledge of the music industry was limited, at best. In one notorious incident, Hands lambasted the company for wasting £200,000 a year on ‘fruit and flowers’ – blissfully unaware that it was a euphemism. When that crops up on a rider, the sweet smell of carnations is far from its artists’ minds…
