Citigroup snatched control of EMI from the private equity mogul Guy Hands yesterday, after the historic record label's management declared it could not go on under the burden of billions of pounds of crippling debt.
Mr Hands, who believed he had until the summer to resolve EMI's financial difficulties, was frozen out of restructuring talks between management and Citigroup, which involved putting EMI's parent company into administration yesterday afternoon. The bank argued that the record company was in effect insolvent, giving it a legal basis to act sooner.
EMI, the home to Coldplay and Katy Perry, owed Citigroup £3.4bn, following a debt-funded buyout by Mr Hands' investment company Terra Firma at the peak of the credit bubble in 2007. Since then it has failed to generate the profits needed to pay off its creditors.
Even Mr Hands had admitted the company was doomed to breach its promises to lenders this March. In previous years, Terra Firma had scraped together enough additional funds to inject into the company to keep EMI from breaching covenants.
The change of ownership frees EMI to solicit buyers or merger partners, as the record industry continues to search for ways to improve its fortunes in the face of falling CD sales and rampant digital music piracy.
It also marks the final unravelling of one of the most ill-starred private equity acquisitions of the boom era, and a humiliation for Mr Hands, one of the UK's most famous financiers, who has lost about £1.75bn on the deal. From day one, his ownership of EMI ran into trouble, as he attacked artists for expecting too much money and not working hard enough and artists attacked him for sacking thousands of employees and slashing costs.
Mr Hands made no immediate public comment on Citigroup's strike last night, but in a terse statement a Terra Firma spokesman said the company was "pleased that EMI's debt burden has been reduced through Citigroup agreeing to write down a substantial proportion of EMI's debt".
In November, Mr Hands had taken the bank to court in the US, claiming Terra Firma was misled into overpaying for EMI in 2007. A Manhattan jury took just four hours to dismiss the case.
Last week, Terra Firma said it would appeal the ruling, but while a reversal could win Mr Hands some compensation and help him rebuild his reputation, it is unlikely to affect the ownership of EMI.
By demanding immediate repayment of its loans to EMI's parent company, Maltby Investments, Citigroup hastened the change of control. Maltby, whose directors include EMI's chief executive Roger Faxon, appointed administrators yesterday and ownership of EMI was immediately transferred to Citigroup.
The bank has already written off most of the value of its loans and, under the terms of the restructuring, EMI will now have a debt load of £1.2bn, little more than one-third of its previous burden. "The recapitalisation of EMI by Citigroup is an extremely positive step for the company," Mr Faxon said. "It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity. We have already made great progress in meeting the challenges facing our industry. 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."
Peter Spratt, a partner at PricewaterhouseCoopers, who was appointed administrator at Maltby, said: "This transaction has enabled ownership of the EMI Group to transfer without disruption. We feel that this represents the best outcome for EMI, its employees, artists and suppliers."