Citigroup wrestles EMI from Guy Hands's grasp

US bank takes 100% ownership of music giant and writes off 2.2bn from its borrowings

Guy Hands this afternoon surrendered control of EMI handing ownership of the music giant behind Coldplay and Tinie Tempah to bankers Citigroup after his venture capital firm Terra Firma could no longer support the company's debts.

The US bank took 100% ownership and immediately wrote-off 2.2bn from its borrowings ending an acrimonious battle with Hands who had been fighting to retain control of the debt-laden music major.

EMI owes Citigroup more than 3bn. The bank supplied Hands with the debt to fund his 4.2bn acquisition of EMI in 2007, in what was seen as one of the most ambitious leveraged buyouts before the financial markets collapsed.

Under Hands, EMI initially struggled to retain marquee artists losing both the Rolling Stones and Sir Paul McCartney while senior executives came and went rapidly. Both Elio Leoni-Sceti and Charles Allen briefly ran its recorded music division before turning over control to long-time insider Roger Faxon.

Citigroup is not expected to be a long-term owner of EMI, with suggestions that the bank will "most likely own the business 12 months or less". Citigroup denied that it had been soliciting buyers, but the bank will move EMI into a private equity vehicle and will consider any offers.

The most often touted buyer is Warner Music, which is keen to take control of EMI's recorded music business. However, Warner also private equity backed is trying to find new investors that may help fund a bid. Warner will also struggle to take on EMI's million strong music publishing catalogue for regulatory reasons, but a Bertelsmann and KRR joint-venture is interested in the company's publishing catalogue.

Eventually, the company performance began to improve, and despite the difficulties EMI even managed to break a handful of new stars such as Katy Perry and Tempah.

EMI was expected to b! reak the next test of its banking covenants at the end of the first quarter.

Citigroup has acquired 100% of the share capital of EMI and moved to recapitalise the company slashing its debt from 3.4bn to 1.2bn, a 65% reduction. Following the deal, EMI now has "in excess" of 300m of cash available to fund its development.

"The recapitalisation of EMI by Citi is an extremely positive step for the company," said Faxon, chief executive of EMI. "It has given us one of the most robust balance sheets in the industry with a modest level of debt and substantial liquidity."

In a statement EMI said that management would remain in place with Faxon emphasising that now the "unsustainable" debt pile had been reduced the company is on a "solid footing".

"We have a clear vision for the future, a strong and committed management team, and now the right capital and financial structure in place to deliver successful outcomes for artists and songwriters," he said.

Faxon added that it is "business as usual" for EMI and that the deal is a "positive development for EMI, its employees, artists, songwriters and suppliers".

Stephen Volk, vice chairman of Citigroup, has been appointed the new chairman of Maltby Acquisitions, the holding company for EMI.

"Our objective is to have EMI perform its absolute best for our shareholders over time," he said.

Hands had been fighting a rearguard action to attempt to hold onto EMI. In January he lodged an application to challenge a verdict delivered last November after a New York jury cleared Citigroup of tricking the private equity firm into overpaying for EMI.

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