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“Of course, we would like music publishing and recording catalogs. EMI`s iconic catalogs are obviously interesting to many."
——BMG Rights Management CEO Hartwig Masuch

HANDS AND EMI—NOW WHAT?

Will Hands Try to Hold Onto the Company? And What Might Happen If Citi Winds Up With It?
On Friday, less than 24 hours after losing his case against Citigroup, Guy Hands was racing to begin a new fundraising effort to keep control of EMI, Gideon Spanier reported in the London Evening Standard.

EMI will very likely breach bank covenants on £2.6 billion of debt in March, meaning Hands must raise at least £100 million in cash by next June. If he’s successful, the Terra Firma chief will manage to keep EMI out of Citi’s hands…until the next payment is due, that is.

Hands' existing investors, including Canada Pension Plan, could convceivably pony up the funds, but insiders admit they may be unwilling to do so after (A) seeing the value of their £4.2 billion purchase of EMI wiped out, and (B) then watching the former King Midas of private equity go down to a humiliating courtroom defeat. “It's all over and he will struggle when the next call comes,” one investor said in thisismoney.co.uk. “He should have settled on the court steps.”

Terra has indicated that it will resume negotiations with Citi about writing off some of its debts in exchange for equity in EMI. But Hands is believed to also be considering selling off part of the company or trying to recruit a new external investor. Experts told Spanier that outside investors were more willing to look at EMI now that the end of the trial had removed uncertainty about its immediate future.

The KKR/BMG Rights Management partnership has already made it clear that they’re very interested in EMI Music Publishing. "We don't know what's going to happen, but we know what we'd like to happen,” KKR/BMG chief Hartwig Masuch told The Daily Telegraph. “Of course, we would like music publishing and recording catalogs. EMI`s iconic catalogs are obviously interesting to many."

Other potential suitors named in the article are Imagem Music, which is owned by Dutch pension fund ABP, and the Marty Bandier-led Sony/ATV, as I.B. Bad mentioned in his latest column.

Masuch also raised concerns about valuation, saying the music industry is now in a very different place than it was a few years ago, citing the shift to digital and writers preferring to deal with smaller music publishers like Kobalt, who have a transparent approach and pay royalties quickly. "The key for a forward going sustainable relationship is gaining trust with writers/artists," he said.

Warner Music may now get another chance to act on its long-standing desire to snag the record company. "Everybody involved knows Warner is interested in the recorded music division,” an industry source told the Telegraph. “They could do it at a price they would be happy with. Citi knows that Warner is interested, but they have had to be very careful about having conversations with them for legal reasons."

While Terra doesn’t need Citi's permission to sell EMI's assets, the record company's board must agree a change of ownership is in EMI's “best interests.”

Private equity sources repeated I.B. Bad’s assertion several weeks ago that other assets, including EMI's Christian music division (I.B. also listed the Latin division) and the North American distribution company. Yet another possibility is the resumption of discussions with UMG and/or Sony about licensing EMI’s back catalog—and conceivably currents as well.

EMI reiterated on Friday that it won’t sell its historic Abbey Road Studios.

As we reported in Rumor Mill before the weekend, EMI CEO Roger Faxon distanced himself and his company from its current ownership’s legal and financial woes. “We are wholly focused on further developing our business, and on delivering positive outcomes for the talented artist and songwriter communities we are privileged to represent,” Faxon stated. “This verdict doesn't change that.”

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