EMI Faces Bank Seizure

Music company EMI is $6 billion in debt. It doesn’t look like owner Guy Hands (who bought EMI through his Terra Firma equity group) will be able to satisfy Citibank, EMI’s main creditor, in time to prevent the bank from seizing it in June. The BBC has more:

The deadline day is 14 June. Terra Firma needs to come up with about £120m by then in order to abide by banking covenants. If Mr Hands fails to come up with the cash, Citigroup will be entitled to take over EMI and put it up for sale, probably to rival Warner Music.

In desperation, Mr Hands has been floating all manner of possible solutions. Ideas such as splitting EMI into two and even selling off assets such as the world-renowned Abbey Road studios have been mooted. But his best hope was to lease the North American rights to EMI’s back catalogue to another of the Big Four major labels, with Sony Music and Universal both named as potential partners.

As music industry sources said, it was not so much selling off the crown jewels as taking them to the pawnbroker’s for a while. But that hope has now collapsed. The price was a major sticking point, while executives at both firms were apparently interested in licensing EMI’s tracks for a far longer period than the five years envisaged by Mr Hands.

The only remaining chance to placate Citigroup before mid-June is for Terra Firma to raise the cash from investors.

Guy Hands, who now lives in the British Channel Islands to avoid taxes, claims Citibank is partly to blame for the high price he paid for EMI. He says the bank failed to inform him that a rival bidder had pulled out, according to the BBC. He and Citigroup will argue the matter in a US court in October. Meanwhile, other companies are suing EMI over issues like rights to ringtones, writes the BBC.

Hands’ EMI has demise written all over it. It’s a lesson not only in the risk of investing in a struggling industry, but in what happens when you pay too much for something, implement the wrong strategy, then run out of options to save yourself. Read the whole BBC article here.