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Citigroup acquires EMI sparking sell-off rumours

Citigroup acquires EMI sparking sell-off rumours

The acquisition, which means that the UK no longer has a major music label, came as a surprise; most experts were predicting an announcement in June when EMI-owners Terra Firma were expected to default on a debt covenant agreed in March.

Citi immediately announced a recapitalisation of the company, reducing the company's debts by 65%, from £3.4bn to £1.2bn.

Citi said the new capital structure meant EMI now had the financial strength and flexibility to deliver on its stated strategic goal of maximising value for its artists and songwriters. EMI already had £300m in cash.

EMI CEO Roger Faxon said it was an "extremely positive step for the company" and added, "It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity. With that solid footing, we are confident in our ability to drive our business forward."

However, the move also raised the question of a possible sell off: both BMG Rights and Warner are interested in the company's recorded music division, which includes the catalogue of The Beatles and Pink Floyd. There are also several parties interested in its profitable music publishing business.

A Citigroup insider told Music Week the bank had little interest in keeping hold of EMI as a going concern. He said, "[Citi] has already been in talks with all the relevant majors about selling off the various parts of the company." For the moment, however, EMI continues under the same leadership that has overseen improvements in financial performance and global market share over the past year as well as breaking new acts including Katie Perry, Lady Antebellum and Tinie Tempah.

"We have already made great progress in meeting the challenges facing our industry," said Faxon. "The closer alliance between our two operating divisions is already delivering impressive results on behalf of the creative talent we are privileged to represent. We have a clear vision for the future, a strong and committed management team, and now the right capital and financial structure in place to deliver successful outcomes for artists and songwriters."

Private equity group Terra Firma bought EMI for £4.2bn in summer 2007 with funding from Citigroup. However, the company's stewardship of the music major has been rocky, with several leading artists departing and considerable problems with servicing debts.

Peter Spratt and Tony Lomas of PwC were today (Tuesday) appointed as joint administrators of Maltby Investments Limited (MIL), the holding company of Maltby Acquisitions Ltd, which is parent company to EMI. MAL was then sold to Citi. The swift move means the EMI business was not affected by the administration.

Spratt said, "As a result of a default under MIL's loan facilities, and the subsequent acceleration of the outstanding debt, Tony Lomas and I were appointed as administrators. Since that appointment, MAL and hence the EMI Group has been sold to Citi.

"This transaction has enabled ownership of the EMI Group to transfer without any disruption. We feel that this represents the best outcome for the EMI Group, its employees, artists and suppliers."

HOW THE SALE WORKED

Private equity group Terra Firma bought EMI for £4.2bn in summer 2007 with funding from Citigroup and set up a number of interim holding companies between Terra Firma and EMI.

Beneath Terra Firma in this tiered structure were Maltby Capital, Maltby Investments Limited (MIL) and finally Maltby Acquisitions Limited (MAL), which owned 100% of EMI.

The eventual sale of EMI was initially triggered by a breach by MIL of its loan facility with Citi. As a result, Citibank was able to demanded immediate and full repayment of all the money owed by Terra. MIL then called in Peter Spratt and Tony Lomas of PwC as joint administrators.

PwC decided that to sell off MIL while it was in administration would be unpractical and therefore sold MIL and by extension MAL and finally EMI.

EMI itself was at no point in administration.

Related Stories:

EMI: The story so far

Terra to appeal against Citi ruling

BMG eyes rich EMI pickings

Bronfman Jr fails to quell EMI talk

EMI CEO denies breakup rumours

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