Private Equity Firm That Bought EMI Sues Citigroup For Misleading It Into Deal

from the oh-come-on dept

You had to be pretty clueless in 2007 not to recognize that the major record labels were seriously struggling. Still, we thought that the decision by private equity firm Terra Firma to buy EMI in 2007 might actually be an opportunity for a major record label to change, since the new bosses did not come from the recording industry, and weren’t saddled with silly preconceived notions about how a major record label had to do business. And, early on, things actually looked positive. New boss Guy Hands was quick to embrace Radiohead’s experiment and let everyone at EMI know that they needed to learn from it, rather than deny it or freak out about it. He also threatened to leave both the IFPI and the RIAA if they didn’t stop suing fans (eventually he stuck with both, but cut their allowance). On top of that, he hired some smart outsiders to help.

Since then, however, everything has pretty much collapsed. While they weren’t saddled with preconceived notions, they were saddled with dreadful contracts, and every attempt to change them resulted in charges from EMI’s biggest artists that the company was trying to screw them over. On top of that, the company started giving really mixed messages. At times it seemed to be embracing the new, and at other times, it would try to personally bankrupt the CEOs of innovative startups. It didn’t take long for the tech experts EMI brought in to quit. Then, there were stories of infighting at Terra Firma, with arguments over what to do with EMI altogether, which could explain some of the contradictory strategy decisions.

Either way, Terra Firma has now decided to sue Citigroup for misleading it into the deal. Again, given the state of the recording industry, it’s hard to see how they thought it was going to be a good deal in the first place, but Terra Firma claims that Citigroup lied to Terra Firma about other bidders to get the firm to pay more and pay now — noting that Citi had a major conflict of interest in acting both as an advisor and a financier of the deal. Of course, that’s how investment banks make their money anyway. They want deal flow, so they have a neat little script that always encourages more deal flow. At times, they talk about synergies, and why companies need to buy each other, and then once they get big, they talk about spinning off parts to “unlock shareholder value.” You can’t trust those guys for an honest assessment of such a deal, and if Terra Firma did so, it seems like it should be the firm’s own fault.

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Companies: citigroup, emi, terra firma

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Comments on “Private Equity Firm That Bought EMI Sues Citigroup For Misleading It Into Deal”

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Hephaestus (profile) says:

Since this is going to drag on ....

“Many analysts have speculated that the most likely outcome for EMI, which has lost prominent artists like Radiohead, is a fire sale to a rival like Warner Music Group, perhaps as part of a bankruptcy proceeding.”

Since this is going to drag on in the courts for a couple years, it is very unlikely that Warner Music Group will be in any condition financially to complete the purchase.

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