Terra Firma and Citi attempt deal ahead of EMI showdown
Monday 18 October 2010
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.
Wellcome Image Awards: The most striking images from the world of science, including breast cancer cells under chemical attack and a photographer’s own kidney stone
Missing Malaysia Airlines plane: Terrorism explanation 'cannot be ruled out', says CIA
Bob Crow death: 'Admired by his members, feared by employers' - Tributes pour in for RMT union leader and 'working class hero' Bob Crow
Oscar Pistorius murder trial: Athlete repeatedly sick as court hears 'graphic details' of Reeva Steenkamp's post-mortem
How climate change helped Genghis Khan: Scientists believe a sudden period of warmer weather allowed the Mongols to invade with such success
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
- 1 Pakistan vs Paul Smith: Sandal-wearers bemused by famed British designer's attempts to sell traditional Peshawari chappal-style shoes for the distinctly untraditional sum of £300
- 2 Family forced to flee home after discovering 'terrifying' nest of spiders in bananas
- 3 Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 4 Russell Crowe's Noah banned in three Arab countries before worldwide premiere
- 5 Bob Crow death: 'Admired by his members, feared by employers' - Tributes pour in for RMT union leader and 'working class hero' Bob Crow
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
VOLUNTARY ONLY - EXPENSES REIMBURSED : Reach Volunteering: Fantastic opportuni...