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EMI costs its backers £3.9bn

Robert Peston | 17:11 UK time, Tuesday, 1 February 2011

The takeover in 2007 of EMI by Guy Hands' Terra Firma - just as the bubble in financial markets was going pop - will go down in British corporate history as one of the worst ever deals.

EMI Music sign

 

The private equity firm Terra Firma and its backers have lost the entire £1.7bn they put into EMI. And Citigroup, the giant US bank, which provided debt finance for the takeover, has written down what it is owed from £3.4bn to £1.2bn - which means that it has incurred a loss of £2.2bn.

That makes total losses from the takeover of £3.9bn.

Following a decision by EMI's directors that the business was insolvent, the assets have now been transferred to the ownership of Citigroup.

The US bank will sell the company, although sources close to EMI insist that Citi will take its time and there will not be a fire sale.

In the music industry, it is widely believed that EMI's recorded music business could end up owned by Warner Music and EMI's more valuable publishing operation may be sold to another private equity firm, KKR.

Comments

  • Comment number 1.

    Do tell us what has happened to the directors who made these terrible decisions and to the small shareholders who have seen their share price plummet.

  • Comment number 2.

    " just as the bubble in financial markets was going pop " - I don't think this was a primary factor in the failure. More important was failure of EMI to really get with the program on download delivery and other technical innovations, and the poor management (and thus departure of) their most important artists. You can't rely on a back catalogue forever.

    Music is changing from premium product to commodity and margins falling match. CD's are cheaper now in the UK than ten years ago, a downward trend that will continue.

    Like HMV, the old dinosaurs will fall by the wayside....

  • Comment number 3.

    £3.9 billion! - in the modern era that's chicken-feed.

    I used to think that a million was a lot of money. Then perceptions changed and a million was so passe. Hell, ball-kickers were being paid millions - even pretty poseurs and the latest personality were sucking up millions just to have their photographs taken.

    Clearly, a new exemplar was required - a flag to portray real importance.

    So the circus moved on and 'billions' was adopted as the new measure of wealth. Any government or outfit worth it's salt wouldn't grace our media unless it could speak of billions. Big people needed big figures. 'Billions' was the answer - but sadly ... it didn't last.

    But the circus didn't cave in - 'trillions' became the new norm. Sovereign debt, unfunded liabilities, taxpayer hand-outs, QE, - all denominated in this exciting new standard. Only a dreamer could possibly have imagined that UK debt would likely exceed £1,400,000,000,000 by 2015. But, to be fair, it looks like we will achieve it.

    So, a bank and a private equity outfit have lost £3.9 billion. Hardly earth-shattering in this day and age is it Robert? Hell, even our bailed-out banks are paying more than that in bonuses!

    That reminds me ... what's the minimum wage nowadays?

  • Comment number 4.

    Makes my tiny mind boggle. My younger brother decided that he was a businessman and nearly ended up losing the family home. Any sensible suggestions as to where a small investor might place his funds? Thanks.

  • Comment number 5.

    EMI Directors did a brilliant deal, sold the business for £3.9 billion more than it was worth, which was nice for the shareholders. The losers were the less than bright people who bought it, Terra Firma and Citigroup. Terra Firma is a private equity concern and so doesn't have small shareholders, just very rich investors and Citigroup will count this as a tiny loss in comparison with what they have lost in the global banking debacle. The real loser is Guy Hands who showed himself to have poor judgement, and be a bad loser when things went wrong - not a nice trait.

  • Comment number 6.

    @watriler Presumably a lot of the original small shareholders cashed in very profitably when the original takeover happened back in 2007.

    They didn't cash in quite as handsomely as the advisors, lawyers, bankers, accountants and management consultants who set up this deal from hell in the first place.

    As for the directors they're no doubt skulking sheepishly around the Caribbean at the moment.

  • Comment number 7.

    How solvent are the remaining Terra Firma Companies? In paticular Annington Homes, who's purchase of the MOD housing stock led to the 2p reduction in income tax. Will the Goverment have to buy them back and put up income tax?

  • Comment number 8.

    Mmm....more private sector efficiency?

  • Comment number 9.

    #7 they will be completely separate investments and the failure of one will not impact on others. Hands may find it difficult to raise money in future for new acquisitions for such a high profile and large failure but that is not a problem for us.

    As for the MOD housing stock I know a fair bit about this. There is absolutely no way Annington could possibly maintain the houses worse than the MOD. The waste and petty rules (depending on whether houses were occupied by officers or squaddies) was utterly unbelievable. In fact had a private landlord maintained the houses the way the MOD did they would probably have breached large sections of law

  • Comment number 10.

    I can't really see that the sale of EMI to American companies is in any way good for national esteem.

    It's something of a sign of the times that our long held ability to produce top-quality music (being the second or third largest exporter of music in the world) woefully outrstrips our ability to run companies with which to sell it to people. EMI has been listing for years, but now, like many other symbols of British industrial dominance from years gone by, it looks as if it will exist only as a 'division of' its more successful foreign counterpart, in the same way as Cadbury and the British automotive industry.

    Very sad.

  • Comment number 11.

    The main reason people like Guy Hands do these large deals are to be in the media and they like to be seen as celebrities. The larger the deal, the larger the media coverage! Running companies successfully has nothing to do with show-business!

    This deal was very similar to the deals done by Fred Goodwin of RBS.

    Decision making should be based on HARD FACTS, not on opinions, half-truths, hype or delusions!

    What these people lack is common sense.

  • Comment number 12.

    Citi will have EMI down on its books as an asset.
    Something it owns. With a value.
    I wonder what other assets Citi has.
    And how much value is claimed.
    How are banks assets valued? By who?
    Can they claim overvalue for years and years?
    Down to the auditors I suppose. - That's a relief.
    For a moment I thought that banks could claim their assets were worth more than their sale value.

  • Comment number 13.

    "And Citigroup, the giant US bank, which provided debt finance for the takeover, has written down what it is owed from £3.4bn to £1.2bn - which means that it has incurred a loss of £2.2bn."

    I wonder if the genius bankers that did this deal took a bonus that year? I imagine they did, justifying it on the basis of their unique skills and talents for providing financial advice and facilitating takeovers. And then the same bankers probably threatened to decamp to Switzerland if their future bonuses were jeopardised. Well they don't look so talented now do they, and yet anyone moaning at the time was dismissed as a Marxist, jealous or simply ignorant. And now the same complaints are met with the same tired old arguments about how we musn't chase away the "talent". It would be funny if it wasn't so tragic.

  • Comment number 14.

    #11 What these people lack is a connection to reality....

  • Comment number 15.

    Can someone tell us if the whizz-kids at Citigroup received a bonus for their brilliant judgement in 2007 backing Terra Firma in their takeover of EMI which has cost Citigroup £2.2bn. I wouldn't be surprised if they did.

  • Comment number 16.

    Has everyone forgotten that Citi was the beneficiary of a huge US bailout.

    Of course they received their 2007 bonus, that's how it works.

    This loss means nothing to this company, business as usual, tax payers to pick up the tab at some point in future.

  • Comment number 17.

    "Blind acceptance is a sign
    of stupid fools who stand in line
    like... E.M.I."
    (J. Rotten)

    Sorry, couldn't resist...

    Seriously, what planet do these people live on? Everyone but them could see this deal was going to be a disaster. What were they thinking? That, as the new owners, they'd be invited to party with The Rolling Stones? Clearly, everyone at Terra Firma and Citi were just dazzled by the "glamour" associated with "celebrities". One needs a cool head for business.

  • Comment number 18.

    Mr Hands was a former banker - enough said. The world and our companies need saving from such people.

    It would be nice to think he may be seen in the dole office. However, I doubt the cost to himù has been much more than his reputation. A reputation that was clearly unwarranted.

    A warning to us all, as if it were needed, never ever trust bankers offering deals and opportunities.

  • Comment number 19.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 20.

    @ 9. At 19:06pm on 1st Feb 2011, Justin150 wrote:

    > Hands may find it difficult to raise money in future

    Yes - he's hunkered down on a Channel Island. He can't afford to live here, now.

  • Comment number 21.

    @ 18. At 08:47am on 2nd Feb 2011, DibbySpot wrote:

    > Mr Hands was a former banker - enough said.

    Just goes to show how pitiful the Sir Greedies and Mr Hands of this world are, doesn't it? I mean, this one lost £4bn by buying a pup!!! I once over-paid £500 for a used car, but that's nowt compared to this Hands geezer. He found out the hard way that hubris is worth jack-all when the chip are down.

    They are wretched.

  • Comment number 22.

    Oh Dear.
    As they say, "The value of your investments can go up or down"

    Isn't this the essence of free market capitalism - you take a risk, you win some, you loose some. There are no guarantees.

    Take it on the chin Guy / Citi etc. You bet big. You lost. Period.

  • Comment number 23.

    Back up what the others have said here.
    A perfect example of why bonuses should be paid on long term performance. The deal turned out to be a dud. Who should be rewarded for cobbling that together????

 

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