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Hands gets reflective on the big EMI purchase
By CMU Editorial | Published on Friday 18 September 2009
In what I think is Terra Firma man Guy Hands’ most blatant admission that his purchase of EMI was a mistake, the investment chap has admitted that, had the deal to buy the struggling London-based music major have been on the table two weeks later than it was back in 2007, he would probably have walked away. The deal, of course, was done just before that tedious credit crunch, leaving the private equity outfit with a mega-debt linked to an underperforming company that might have looked like an ambitious but worthwhile gamble during the economic boom, but which looked like a foolish error in the context of the recession.
Speaking at a Dow Jones conference yesterday, Hands admitted: “If the EMI auction started two weeks later, it wouldn’t have occurred. We wouldn’t have bought it. We’d have 90 percent of our funds still to invest and we’d look like geniuses”.
Of course since buying the struggling music firm Hands has instigated sweeping cuts to reduce the overheads of the major’s recorded music arm, and set about introducing a totally new business culture based on monetizing artist relationships, and providing marketing and distribution services to self-releasing artists and other labels, rather than focusing exclusively on buying up master recording rights, most of which provide a very poor return on investment.
But despite those efforts – and some improvement in terms of revenues – the company continues to struggle, partly because the costs of the downsizing and restructuring were significantly more than Terra Firma expected, and partly because the artist community (or rather the artist management community) proved to be a lot less willing to collaborate with EMI on non-recording projects than Hands seemed to expect.
It didn’t help that Terra Firma’s acquisition of EMI landed the music firm with large and expensive debt commitments to Citigroup – debt commitments it’s been hard to renegotiate or redistribute given the credit crunch – plus the company lost a lot of knowledge and contacts by cutting off quite so many senior execs during the restructure, and has since struggled to keep hold of the new senior appointments it has made.
But despite seeming to regret his big EMI gamble, Hands insisted the company was doing much better now than when they acquired it. Earnings had gone from $80 million a year to just over $260 million, and were set to top $330 million this year. That said, EMI remains a burden for Terra Firma, and its future is still in the balance pending debt restructuring negotiations, which have been ongoing with Citigroup for sometime.
Commenting on those negotiations, Billboard reports that Hands told the Dow Jones event: “Will we get to a solution that’s a win-win for all stakeholders? I don’t know, but I certainly know there’s desire from all parties to do it. Right now, the reality is we’re improving the company as much as we can”.
Allowing EMI to collapse isn’t really in Citigroup’s interests, which plays to Terra Firma’s advantage in their negotiations with the US bank, though some say if the major’s assets (ie its catalogues) were to be auctioned off – maybe the master recordings to Warner and the publishing catalogue to the KKR/Bertelsmann JV (yes, those rumours persist) – that might bring in enough cash to make cutting the good ship EMI loose a conceivable proposition.
Time will tell I guess. Either way, I think it’s fair to say EMI more than anyone could really do with people liking that new Robbie Williams album.
