Will Terra Firma give up EMI?

By Felix Salmon
August 16, 2009
Aaron Patrick's WSJ article on EMI tells us little we don't already know about the state of the famous record label, and indeed soft-pedals the famous "fruit and flowers" expenses so much that many readers will have no idea what he's talking about. (It's industry code for cocaine and other illegal expenses.)

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Aaron Patrick’s WSJ article on EMI tells us little we don’t already know about the state of the famous record label, and indeed soft-pedals the famous “fruit and flowers” expenses so much that many readers will have no idea what he’s talking about. (It’s industry code for cocaine and other illegal expenses.)

What is interesting, however, is what’s going on at the top of the company: after installing himself as CEO, owner Guy Hands then replaced himself last September with Elio Leoni-Sceti, who is now telling Patrick that “it’s a natural part of the business that it moves on from ownership to ownership over the course of a long term”.

EMI Music has failed three covenant tests on its $950 million loan from Citigroup, which could, therefore, were it so inclined, foreclose on the loan and auction off the business. The quote from Leoni-Sceti sounds to me as though he’s wholly cognisant of that possibility, and not particularly scared of it, especially if (as is entirely possible) he remains CEO under the new ownership.

The acquisition of EMI by Terra Firma was one of the highest-profile private-equity acquisitions of the boom, along with Cerberus buying Chrysler. The latter went to zero; there’s no reason why the former shouldn’t do the same.

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