Guy Hands Proposed Separation of EMI Recording, Publishing Units

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The music industry is no stranger to controversy, and the EMI Group is no exception. The company has been embroiled in a messy legal dispute between Terra Firma and Citigroup, and the situation is only getting messier. The latest development in the ongoing legal battle is the release of fresh documentation that sheds light on the deal that went seriously bad.

The new paperwork reveals that Guy Hands, the topper of Terra Firma, proposed a separation of the publishing and recording units in November. He believed that the implementation of the separation of Recorded Music and Music Publishing was essential. However, Citigroup ultimately rejected the plan.

The internal correspondence included in the documents filed on Friday is equally revealing. In one email exchange, EMI Music chief Elio Leoni-Sceti told Hands that the endless bad publicity was affecting business. He pointed out that not only were artists and artists’ managers raising concerns, but morale within the company had reached a low point.

The situation at EMI was not helped by the fact that Hands estimated the current company valuation at £2 billion ($3.1 billion) less than its 2007 purchase price. EMI Music Publishing was assigned a valuation of £1.46 billion ($2.3 billion), and the recorded unit EMI Music was given a valuation of less than £800 million ($1.3 billion).

The legal dispute between Terra Firma and Citigroup began in 2007 when the private equity firm, led by Guy Hands, acquired EMI for £4.2 billion ($6.5 billion). Terra Firma used a loan from Citigroup to finance the purchase, and the dispute arose when Citigroup allegedly misled Terra Firma about the value of EMI.

Terra Firma claimed that Citigroup had inflated the value of EMI to win the bidding war for the company. The private equity firm also accused Citigroup of using its position as a lender to force EMI into the hands of a rival bidder. Terra Firma argued that it would not have paid the high purchase price if it had known the true value of EMI.

The case went to trial in 2010, and Terra Firma lost. The court ruled that Citigroup had not misled Terra Firma, and the private equity firm was left with a £1.75 billion ($2.7 billion) loss.

The latest documentation sheds new light on the deal that went wrong and the subsequent legal battle. It also reveals the challenges that EMI faced in the aftermath of the acquisition. The endless bad publicity, the low morale within the company, and the significant drop in the company’s valuation are all signs that the acquisition did not go as planned.

The music industry has changed significantly since the EMI acquisition in 2007. Streaming services have replaced physical music sales, and the value of music publishing has increased. EMI, like many other music companies, was slow to adapt to these changes, and the company’s valuation suffered as a result.

The legal battle between Terra Firma and Citigroup is a cautionary tale for anyone involved in mergers and acquisitions. It highlights the importance of due diligence and the need for transparency in financial transactions. It also underscores the fact that even the most experienced investors can make mistakes.

In conclusion, the messy situation at EMI Group is a reminder that the music industry is not immune to controversy. The ongoing legal dispute between Terra Firma and Citigroup is a cautionary tale for anyone involved in mergers and acquisitions. The latest documentation sheds new light on the deal that went wrong and the challenges that EMI faced in the aftermath of the acquisition. It also highlights the need for due diligence and transparency in financial transactions.