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A source close to Terra Firma said: "Guy will just say 'Do you want to run the company yourselves? If you do, here's the keys.'"
GUY HAS HIS HANDS FULL AT EMI
Citigroup Gives Him Three More Months to Achieve Financial Goals

Guy Hands has three more months to meet his financial goals at EMI Music.

Citigroup, the bank that lent Hands’ Terra Firma private equity group £2.5bn to fund the buyout a year ago, has given him that extra time to satisfy their demands, according to a report in the U.K. Sunday Telegraph.

The company must generate underlying earnings of $350 million (£180m) by September to meet those key targets.

Hands was able to buy time after raising £250m in January from outside investors who now have direct holdings in EMI. The new money will help finance a restructuring which is expected to add £100m to the bottom line by cutting over 2,000 employees from its staff of 5,500.

Internal forecasts suggest the original June target will now be missed. EMI managers say they were told at the end of last year that in the 12 months to June, the recorded music division had to generate $292 million (£150m) in EBITDA earnings.

Company sources suggest the division is likely to make £133m, missing the goal by £17m. As a result, many managers will now not receive promised bonuses.

Instead, staff has been told that once Terra Firma realizes its investment either through a sale or refinancing, 15% of the equity in EMI Music, the recorded music division, will be shared with its entire workforce. A similar incentive will be offered to the music publishing business.

Citigroup is likely to use any shortfall to try and renegotiate the terms of the deal. It has so far been unable to sell any of the loan which funded Terra Firma's acquisition of EMI last summer for £4bn including debt.

The original loan was agreed to just before the beginning of the credit crisis last summer, and has seven and a half years to run. Citigroup later managed to insert some clauses to give it more protection, and grab £200m of extra equity from Terra Firma, but the terms of the deal still give Hands some leeway.

A source close to Terra Firma said: "Guy will just say 'Do you want to run the company yourselves? If you do, here's the keys.'"

The report also indicated Terra Firma has a secret plan, code-named Project Poker, to merge with the Warner Music Group, which would involve selling music publishing assets to secure regulatory approval.

In the last year before the company was taken private, EMI Music made underlying profit of £45m on total income of £1.35bn. By contrast, the music publishing division, with a fraction of the staff, made £106m underlying profit on income of £401m.

Terra Firma sunk £1.5bn of its own money into the EMI deal. Hands had originally intended to put in £1.3bn of equity, but Citigroup negotiated that amount up by £200m.

The company is heavily banking on sales from Coldplay’s Viva La Vida, its first album in three years, which comes out June 17.

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