Terra Firma and Citi attempt deal ahead of EMI showdown

Terra Firma and Citigroup were locked in talks last night in a last-ditch bid to avert the start of a trial in New York, which will decide if the US bank misled Guy Hands' private equity firm over the buyout of EMI Music.

Sources close to both sides expressed doubts whether the negotiations would lead to a deal before the start of today's hearing, although both are eager to avoid a costly and drawn out courtroom tussle.

The row is over the buyout of the music label three years ago during the halcyon days of the private equity industry. Terra Firma paid £4.2bn at the top of the market, and while EMI's trading performance has improved, the group that produces records for the likes of Lily Allen and Robbie Williams has struggled to keep up with debt repayments.

Terra Firma claims that Citigroup, and David Wormsley, its leading banker on the deal, overestimated the potential of EMI, leading to the private equity firm paying over the odds for the former FTSE 100 company. Citigroup denies any wrongdoing. Neither side commented yesterday.

Mr Hands is thought to be hoping to persuade Citigroup to agree to significantly reduce the debt. According to reports over the weekend, he is demanding that the bank write off £2bn in return for calling off the court case and the bank being absolved of any blame. Mr Hands is also likely to insist that the terms of the debt are reset.

"What is clear, and this is true whether or not the case goes to court, is that Citi will be forced to reduce the debt," said a source close to the situation. "At the moment it is far too high."

Mr Hands could also try to find new investors, while another possibility is that EMI is broken up, with fellow private equity firm Kohlberg Kravis Roberts mooted as a possible buyer for the music publishing business.

Despite the size of the potential write-off, a deal to cut the debt owed by EMI may prove to be attractive to Citigroup. The bank's fortunes have improved over the past 12 months; it is expected to report impressive third quarter earnings later today.

The bank will be concerned that if the court rules in Terra Firma's favour, the decision could lead to a flood of litigation. A host of private equity sponsored deals, arranged by several leading investment banks and completed in the run up to the financial crisis, have since turned sour.

Earlier this year, Citigroup failed to have the case moved to London and last month its effort to have the case thrown our entirely was rejected.

With as much as a $1tr worth of deals due to be refinanced in the next few years, a court decision that finds that the banks were culpable for poorly arranging a number of deals could be disastrous.

The problem is exacerbated by the fact that the IPO market, a traditional exit point for private equity firms, has been temperamental for more than a year and has largely eschewed floats for heavily indebted companies.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links