A clause in the financing agreement could allow Citigroup to walk away if the 90% threshold is not met.


Financial Backers of the Terra Firma Buyout of EMI May Be Getting Cold Feet, According to U.K.’s Financial Times
It looks like we were right for a change when we told you last week that Guy Hands’ financing was in danger of falling apart on the eve of Terra Firma’s acquisition of EMI.

A report in today’s Financial Times reveals that Hands is scrambling to secure enough backing from investors for the £2.4bn agreed deal, amid growing concerns that tightening credit markets could undermine the business case for the takeover.

The required approval of 90% of EMI shareholders probably won’t happen by 1 p.m. London time on Sunday, the current extended deadline, but a reliable source tells us that as long as Terra Firma gets to a minimum of 50% acceptances by that time, the deadline can be extended another three weeks.

According to the FT story, a clause in the financing agreement could allow Citigroup—which is advising Terra Firma and EMI on the bid—to walk away if the 90% threshold is not met. "Citigroup have not said they will waive the acceptance condition as they would normally do," said a person close to Terra Firma. "Citigroup have not come off the fence yet."

But bailing on Terra Firma and EMI would be "suicidal" for the bank's relationship with two of its best U.K. clients, another person close to the deal told the paper.

Even if the deal goes as planned, credit market conditions could force Terra Firma to pay more for the £3.5bn debt package, while Citigroup could be left holding a larger chunk of the loan than it counted on.

Investment bankers said any hard line from Citigroup could merely be a negotiating tactic to secure better terms on the package it puts together to replace Terra Firma's temporary financing.

Meanwhile, the word on the street is that Citigroup has had enough of the leverage business, and the firm has taken an extreme hard line on some recent U.S. syndications.