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As soon as the deal [is] struck, Citi would sell the recorded music division to Warner Music for £400m and the music publishing division to the U.S. private equity group KKR (also a major investor in BMG Rights Management) for £1.1bn.
WILL GUY HANDS EMI OVER TO CITIGROUP?
Terra Firma Reaches “Endgame” as £1.5bn U.S. Sale of Record, Music Publishing Companies Looms
Beware the ides of March… or January for that matter.

U.K. press reports indicate Guy Hands could be ready to relinquish the keys to his EMI Music kingdom to lender Citigroup within weeks, paving the way for a sale of the fabled British music group to U.S. buyers for a price tag of £1.5bn.

A Citi source told the Guardian: "The endgame is fast approaching. Guy's backers don't want to put any more money into EMI, which means he has to cede control and admit defeat."

The source said that Citi has lined up buyers for the music publishing division and the recorded music business.

Citi does not have the formal right to take ownership of EMI until after March, when Terra Firma expects to be in formal breach of the terms of its banking covenants, with Citi owed £3bn. Hands is reportedly studying an option that would allow him a swift exit from one of his worst investments in 20 years, which sources insist will take place within the next month to six weeks.

Terra Firma acquired EMI just before the credit boom turned to bust in 2007 for more than £4bn. Two months ago, Hands lost a N.Y court case in which he demanded compensation from Citi for allegedly tricking him into overpaying for EMI by pretending another bidder was in the frame.

The jury took only four hours to throw out the claim. But the defeat did not stop Hands from taking a £12m dividend from Terra Firma last year, according to accounts filed at Companies House.

Rumours were flying on Friday that Hands and Citigroup were on the verge of agreeing to a restructuring that would see the bank write off about half the company's debts. In return, Citi would seize most of the equity in EMI, giving it management control. As soon as the deal was struck, Citi would sell the recorded music division to Warner Music for £400m and the music publishing division to the U.S. private equity group KKR (also a major investor in BMG Rights Management) for £1.1bn.

Both groups refused to comment on speculation that Citi might shortly apply to a UK court for an administration order, arguing that EMI was trading insolvently because there was little or no prospect that the loss-making group would meet banking covenants.

Investment bankers say the simpler solution for Hands would be to walk away from EMI, allowing Citi to take immediate control of the sales process.

Jon Moulton, former head of the private equity group Alchemy and now chairman of Better Capital, was skeptical Hands could convince Terra Firma investors to pump more money into EMI at this point: "If the company is worth less than its debt liabilities, you might feel you are putting your cash down a hole."

Last summer KPMG, the auditor for Maltby Holdings, the Hands-controlled company that owns EMI, noted that Terra Firma investors had provided "'equity cure' funding relating to the covenant test periods to 31 December 2010,” adding that further funds would be required from shareholders "for cure payments" in respect of the test periods ending in 2011, while noting, “No agreement has yet been reached with shareholders for such further equity injections, nor is there any certainty that such an agreement will eventually be reached."

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