So, according to reports, Terra Firma boss Guy Hands put on his finest woolly jumper yesterday, you know, the one his Aunt Aida knitted while on that coach trip to Bridlington, for a closed doors meeting with the men from Citigroup, to discuss the two parties' upcoming court squabble in New York.

The aim of the meeting was to see if there was any last minute deal that could be done that could result in an out of court settlement. Rumours that said meeting had been planned started circulating last month, though this Sunday The Mail were quoting insider sources that said neither side was really in negotiating mood, and said meeting was therefore expected to be very short.

Assuming no agreement can be reached this week, the big court case should kick off next month on 18 Oct. As previously reported, Hands is suing the bankers over the information and advice they provided just before his company's big takeover of EMI in 2007. The financier argues that Citigroup had a conflict of interest, because another part of the company was working for the then-and-still flagging music firm. He contends that had the bank provided more accurate information he wouldn't have gone through with his ambitious and ultimately disastrous takeover of the London-based music major.

EMI still has a multi-billion pound debt to Citigroup stemming from Terra Firma's acquisition, of course. The equity group began legal action against their bank last year after efforts by Hands to restructure that debt failed. As also previously reported, EMI needed a further cash injection from Terra Firma earlier this year to meet covenants relating to that loan, and it seems likely that further cash injections will be required in future years too. Though Terra Firma are very keen to tell us that the vast majority of their investors are still very supportive of their music company, so that's no problem at all then.

Neither Citigroup nor Terra Firma have commented on their out of court negotiations, not even to confirm or deny they are happening. It therefore seems likely we'll hear no more about this case, idle speculation aside, until 18 Oct.

For legal reasons we must stress that, if this meeting did indeed happen, which it may or may not have done, Guy Hands would not have worn a woolly jumper knitted by his Aunt Aida. In fact that jumper, that aunt and all of that knitting were figurative. Coach trips to Bridlington do occur, however. 

According to the Wall Street Journal, Terra Firma top man Gary 'the Guy' Hands has got the all-clear from enough of his investors to bail out EMI once again, meaning Citigroup are not now likely to seize ownership of the major next month and put it up for sale.

As much previously reported, EMI must pay over £100 million in loan fees to the US bank next month, and must demonstrate how it will do so this week. As EMI has no money, that required owners Terra Firma to find the cash. Management there also needed to get 75% of their investors to OK them transferring yet more money over to the music firm, even though that means pumping yet more cash into the equity group's most disastrous of acquisitions.

As of last week it was reported that Hands had secured commitments from his financial backers to the tune of £105 million, which is apparently enough, even though it was widely reported EMI must pay Citigroup £120 million. However, he still needed the OK from enough of those investors who were not actively contributing this time round to continue supporting the music firm.

The deadline for votes was reportedly Monday and, according to the WSJ, enough votes went in Hands' favour. Presumably enough Terra Firma investors believe there is a good enough chance that they can still make good on their original EMI investment, eventually, that now is not the right time to cut their losses and let Citigroup take control.

Of course, Hands had wanted to raise £360 million, so that EMI had next year's loan fee payment already covered, and so a mooted hole in the pension fund could be plugged. Terra Firma chiefs had told their investors that EMI needed to be able to demonstrate two to three years of relative financial security in order to sell a multi-million dollar licence-come-distribution deal for the major's recordings catalogue in North America. It's thought that, providing EMI bosses can show they won't go out of business this time next year, there is still some interest for such a deal at both Sony and Universal.

That guy, you know, that guy... the guy... you know, Guy, right? Guy. Him, yes, you know. Mr Hands to his children. Him. Yes, well, he's apparently hoping to persuade his financial backers to not only stump up the £120 million EMI must pay Citigroup in June, but another £240 million as well, partly to cover the next loan fee payment, presumably due in twelve months time, and partly to help plug that previously reported hole in the major music company's pension fund.

As previously reported, Guy Hands and his top team at EMI owners Terra Firma seem to be increasingly optimistic of late that they can persuade the equity group's investors to provide the flagging music company with a multi-million pound cash injection to help keep the bankers away from the door. If they don't, Citigroup is likely to foreclose on the major's multi-billion dollar loan, taking control of the music company and probably splitting it up for sale.

As also previously reported, EMI's Executive Chairman, Charles Allen, has penned a report into how he plans to turn round EMI's fortunes in the next five years, so that the major can start to pay its own bank fees sooner rather than later, while starting to generate the kind of profits that will make a serious dent into the £3.2 billion the music firm owes its bankers, so that Terra Firma might actually start to see some pay back from it's big musical experiment one day.

With that report pretty much complete, Hands, although apparently stranded in New York because of the ash cloud (though he's unable to come to London anyway, for tax reasons), is now expected to start sweet talking Terra Firma's backers with the aim of getting approx £360 million in place by the end of next month.

According to the Financial Times, Hands will tell his backers that he and the top team at the equity firm will personally put £58 million in the pot, almost three times more than they would be due to pay under existing allocation agreements. Presumably Hands wants to demonstrate his confidence in Allen's grand plan via his wallet. 

It's thought that grand plan will propose further job cuts, more outsourcing of back office activity, the sale of some stand alone divisions and the much reported licensing out of the major's recordings catalogue in North America. As well as resulting in significant savings, it's now thought the plan might also propose using some of the money generated by selling off recording assets to buy new catalogues for the more stable EMI Music Publishing.

According to the Financial Times, EMI owners Terra Firma have brought in a business expert who apparently helped sports chain JJB Sports avoid going bankrupt last year to assist in bid to stop Citigroup from taking ownership of the music firm. Terra Firma and its tax-dodging chief Guy Hands have fallen out with Citigroup big time, of course, and are in the process of suing the US bank. The fall out occurred after Citi refused to restructure (ie write off a chunk of) EMI's debts to the bank.

Former Selfridges chief Peter Williams reportedly helped JJB Sports negotiate new terms with its bankers that stopped the retailer going under last year. Therefore his appointment to Maltby Investments, the Terra Firma owned company through which the equity types own EMI, might be a last minute bid by Terra Firma to restore good relations with Citigroup.

As previously reported, as it currently stands Terra Firma could lose control of EMI if they can't raise $189 million to help the music company meet its loan commitments to Citigroup in May. The FT think that as well as dealing with Citigroup on the equity firm's behalf, Williams will also scrutinise EMI Music chief Elio Leoni-Sceti's previously reported business plan for turning round the fortunes of the major's still flagging recorded music division.

The boss of EMI owners Terra Firma, that crafty Guy Hands fella, told his financial backers last November that it was "essential" that the company be split into two - so that the struggling music major's recorded music and music publishing divisions would become separate entities - according to new documentation revealed by the Wall Street Journal this weekend.

Hands seemingly talked up plans to split his big music asset into two late last year, amid then ongoing negotiations to persuade EMI's money lenders Citigroup to restructure the company's debts. As previously reported, Hands wanted the US bank to write off a billion of EMI's debts (debts caused by the cash Terra Firma borrowed to buy EMI in the first place), in return for a commitment by the equity firm to pump a similar amount of new money into the faltering music concern. Citigroup refused to play ball, and since then Hands has launched legal action against the bank for alleged bad advice given to him by the bankers ahead of this purchase of EMI in 2007. Speculation has also risen that EMI will default on its loan commitments, allowed Citigroup to take control of the firm.

The correspondence between Hands and Citigroup regarding splitting up EMI's record labels and publishing units has come to light because of the legal dispute between the two companies. Also among documents filed with the US courts last week was an internal memo from EMI's recorded music chief Elio Leoni-Sceti warning Hands that morale among the record company's staff and artists (and those artists' managers) was at an all time below, the latter presumably making it difficult for the major to sign the sort new talent that a major record company needs on board to ensure future success.

Of course, it is widely known that it is Leoni-Sceti's recorded music division that causes EMI most of its financial problems, with EMI Music Publishing, in line with most of its competitors, being more resistant to slumping record sales; the publishing sector having always relied as much on broadcast, public performance and sync royalty revenues (all of which are up) as much as the songwriter and publisher's share of declining record sale revenues.

That EMI's more successful music publishing company be spun off from the flagging recordings business is not a new idea, and, indeed, before Terra Firma's acquisition of the company at least one of the other bidders for the music major intended to do just that had they successfully acquired the music firm.

That said, as the recorded music business becomes more and more about licensing sound recordings than selling plastic disks, the differences between record companies and music publishing companies start to decline. As a result, the case may now actually be stronger for merging EMI's record labels and publishing wing, rather than furthering the divide between them. It would be a bold move, but adopting the model being nurtured by BMG's new songs-and-recordings music rights agency might just work, even for a company as big as EMI.

Elsewhere in his banker exchanges, we see Hands admit that the music firm is worth £2 billion less now than what he paid for it in 2007 - with the equity man suggesting EMI Publishing is worth just under £1.5 billion, and the record company less than £800 million. Terra Firma has, of course, written down the value of the music firm on a number of occasion, with the value of the equity firm's overall portfolio of corporate assets taking quite a hit as a result.

So, the doom and the gloom surrounding EMI only grew yesterday following yesterday morning's news that the London-based major's owners Terra Firma were asking their financial backers to pump another £100 million into the flagging music company to enable it to meet its loan repayment commitments to Citigroup.

As the day progressed it was revealed that the major was about to announce a pre-tax loss of £1.75 billion for the financial year to the end of March 2009 - which it then did - which is a pretty magnificent sized hole, even for the struggling record industry. No wonder there are concerns the company will stumble on its loan terms, enabling Citigroup to seize ownership of the major for itself. And no wonder there is speculation that some of Terra Firma's financial backers are ready to bail on the music company.

That said, the details behind the £1.75 billion losses reduces the drama slightly. A billion of the losses were caused by the firm's accountants insisting on a so called 'impairment charge', whereby the perceived value of the EMI catalogues and the company's corporate reputation was dramatically cut, having a serious impact on the firm's bottom line. Meanwhile ongoing restructuring costs used up over £100 million and interest payments to the aforementioned Citigroup on the loan Terra Firma took out to buy EMI in 2007 cost the company several hundred million more.

What this means is that, while EMI's record labels continued to flag in 2008/2009 (this was before the big Beatles reissue remember), a boost in music publishing revenues meant the company in itself was just about operational. It was accountancy recalculations and costs directly associated with Terra Firma's 2007 acquisition that caused a bulk of those dramatic losses.

But while rational thinking can reduce the drama of the '£1.75 billion in losses' headline a little, that's not to say EMI isn't on the brink as we write. According to the Telegraph, KPMG, the auditors of Maltby, the holding company through which Terra Firma own EMI, have said that the music company is more likely than ever to breach its lending terms to Citibank, while they also raise concerns about the £200 million deficit in the firm's pension fund. Those facts, the accountants say "cast significant doubt on the group's ability to continue as a going concern".

All of which explains why Terra Firma and its top man Guy Hands are so keen to persuade their financial backers to cough up some extra cash. But many reckon that even if £100 million is forthcoming, that cash will only buy a limited amount of time, and too little time to turn round EMI's fortunes before another cash crisis related to commitments on the Citigroup loan. A fact which might make Terra Firma's investors wonder if now is the time to cut their losses.

And, of course, as we pondered yesterday, all this uncertainty will make it difficult for EMI to sign any of the next big thing talent that has the most profit potential for a record company. What manager will want their band signed to a company which might not exist in its current form in a year's time? All this talk of doom and gloom - even if not entirely founded just now - is in danger of becoming a self-fulfilling prophecy.

A Warner merger like that we outlined in yesterday's CMU Daily is looking more and more like an attractive proposition, even if it would require Citigroup to turn some of their debt into equity, and Terra Firma to relinquish control to Warner Music's Edgar Bronfman Jr and see their overall stake dramatically reduced.

Presumably all those former senior EMI types forced out by Terra Firma and Hands after their 2007 acquisition must be smiling a little this morning. While it's true those former execs also had a role in creating EMI's current insecure state, the arrogant "the problem with you music people is that you don't understand business" attitude of Team Terra Firma in 2007 is now looking a little silly. Hands will blame the credit crunch for his failure, of course, though that was only part of the problem. The Terra Firma man was very astute when it came to identifying the problems facing EMI and the wider record industry, but less good at figuring out the solutions.

EMI's recorded music division had an OK second half of 2009 which, as previously reported, ensured the major record company was performing well enough to satisfy its principle money lender Citigroup's ongoing loan terms. And even seemingly enabled the music major to cover its own interest payments to the US bank. But that was in no small part thanks to the rather grand re-release of the Beatles catalogue all of which - unless ongoing lobbying efforts by the European record industry delivers some results - will come out of copyright in the next decade.

Certainly the chief of EMI owners Terra Firma, Guy Hands, recognises that the recent revenue boost at EMI Music is unlikely to be sustained throughout 2010 - however many press releases the company sends me telling us the firm has four titles in the US Album Top 10 this week. And this means the major will once again struggle to meet its commitments on the multi-billion dollar Citigroup loan Terra Firma took out in order to buy the music company back in 2007. 

Which is why Hands has reportedly asked investors in Terra Firma to inject another £100 million into Maltby Capital, the company through which the equity group owns EMI. It's not the first time Hands' financial backers have been asked to take a hit to keep his company's big music asset afloat, and last year they gave their backing to a plan to pump an extra billion into the music company on the condition Citigroup write off a billion of EMI's debts. That proposal fell through because Citigroup refused to play ball.

But the Financial Times reckons this latest ask of his investors is the biggest test of the Hands' abilities yet. Some of his backers may well be wondering whether EMI will ever be anything more than a dead weight for the equity group. Meanwhile, with the equity man now in a legal dispute with Citigroup over their role in the original EMI acquisition, the bank is unlikely to cut him any slack if his investors prove unhelpful.

The FT says that Hands has asked EMI Music boss Elio Leoni-Sceti for a reinvigorated business plan that can convince his investors that there is light at the end of the tunnel, even if it's an incredibly long tunnel. Apparently, proposals to flog off some of the firm's recorded music assets, such as its Japanese division or classical labels, were none starters because there was insufficient interest to ensure a buying price in line with the major's loan covenants with Citigroup.

Some wonder whether there is really anything Leoni-Sceti can say or do that will have any impact with investors. A major problem for EMI these days is that its finances are never out of the news. Record companies make most money by signing next big things to three to five album deals, cashing in from the moment that band breaks to the point at which their original contract, tipped in the label's favour, expires.

But such deals are, of course, very risky. EMI can no longer afford to employ the traditional strategy of signing ten such deals on the hope one comes good, but most bands with enough buzz and existing fanbase to sufficiently reduce that risk will be getting offers from multiple labels, and are unlikely to opt for the EMI deal given the major's uncertain future.

Ironically, when Terra Firma bought EMI many of the firm's top execs (now all long gone) waxed lyrical about how private ownership - rather than being a public company trading on the London Stock Exchange - would ensure constant speculation about the firm's finances would stop. Actually, the reverse has turned out to be true - few people in the music industry really understand what fluctuations in share prices mean, but can very much get their head around the fact that doing business with a company saddled with a $4 billion debt is not without its risks.

Though, actually, there is probably one business plan that Leoni-Sceti could propose that might just work - albeit a controversial one - merge EMI with Warner. Combine the two companies' recording and publishing catalogues into one massive music rights agency, adopting the model of BMG's latest move into the music business. With regards new talent, focus on Warner UK's interesting approach to 360 degree style business partnerships with bands rather than traditional record deals. And, from EMI, take the distribution division - or Music Services as it is now known - the one bit of the flagging major to have enjoyed a renaissance since Terra Firma's big purchase. Regulator approval for a combined EMI/Warner permitting, that, ladies and gentlemen, could just work.

Terra Firma boss Guy Hands has confirmed that talks are ongoing with Citigroup regarding the restructuring of EMI's debts.

As previously reported, the US bank recently rejected Terra Firma's latest proposals for altering the debt agreements between EMI and Citigroup, mainly because it involved the bankers writing off about a billion dollars in debt.

As Terra Firma has to provide EMI with more funds whenever the struggling music major can't meet its loan repayment commitments to Citigroup, the private equity firm is rather keen to come to some deal with the bank sooner rather than later. As it is the value of Terra Firma's investment portfolio took another hit after the finance types were forced to further downgrade the value of its music asset earlier this week.

Speaking at an investment conference in Paris, the increasingly candid Hands, who these days makes no secret of his regrets in buying EMI, said he was still looking for his banking partners to "share the pain" of the music major, whose recorded music division continues to struggle despite radical downsizing and restructuring.

He told the conference that discussions continue with Citigroup, adding that the talks "are about how much each side shares in the pain".

As previously reported, income from the various Beatles re-releases are helping EMI Music stay self-sufficient for the time being, and Robbie sales might help in the next quarter, though many increasingly expect Terra Firma to bail on the music major sometime next year.

In what I think is Terra Firma man Guy Hands' most blatant admission that his purchase of EMI was a mistake, the investment chap has admitted that, had the deal to buy the struggling London-based music major have been on the table two weeks later than it was back in 2007, he would probably have walked away. The deal, of course, was done just before that tedious credit crunch, leaving the private equity outfit with a mega-debt linked to an underperforming company that might have looked like an ambitious but worthwhile gamble during the economic boom, but which looked like a foolish error in the context of the recession.

Speaking at a Dow Jones conference yesterday, Hands admitted: "If the EMI auction started two weeks later, it wouldn't have occurred. We wouldn't have bought it. We'd have 90 percent of our funds still to invest and we'd look like geniuses".

Of course since buying the struggling music firm Hands has instigated sweeping cuts to reduce the overheads of the major's recorded music arm, and set about introducing a totally new business culture based on monetizing artist relationships, and providing marketing and distribution services to self-releasing artists and other labels, rather than focusing exclusively on buying up master recording rights, most of which provide a very poor return on investment.

But despite those efforts - and some improvement in terms of revenues - the company continues to struggle, partly because the costs of the downsizing and restructuring were significantly more than Terra Firma expected, and partly because the artist community (or rather the artist management community) proved to be a lot less willing to collaborate with EMI on non-recording projects than Hands seemed to expect.

It didn't help that Terra Firma's acquisition of EMI landed the music firm with large and expensive debt commitments to Citigroup - debt commitments it's been hard to renegotiate or redistribute given the credit crunch - plus the company lost a lot of knowledge and contacts by cutting off quite so many senior execs during the restructure, and has since struggled to keep hold of the new senior appointments it has made.

But despite seeming to regret his big EMI gamble, Hands insisted the company was doing much better now than when they acquired it. Earnings had gone from $80 million a year to just over $260 million, and were set to top $330 million this year. That said, EMI remains a burden for Terra Firma, and its future is still in the balance pending debt restructuring negotiations, which have been ongoing with Citigroup for sometime.

Commenting on those negotiations, Billboard reports that Hands told the Dow Jones event: "Will we get to a solution that's a win-win for all stakeholders? I don't know, but I certainly know there's desire from all parties to do it. Right now, the reality is we're improving the company as much as we can".

Allowing EMI to collapse isn't really in Citigroup's interests, which plays to Terra Firma's advantage in their negotiations with the US bank, though some say if the major's assets (ie its catalogues) were to be auctioned off - maybe the master recordings to Warner and the publishing catalogue to the KKR/Bertelsmann JV (yes, those rumours persist) - that might bring in enough cash to make cutting the good ship EMI loose a conceivable proposition.

Time will tell I guess. Either way, I think it's fair to say EMI more than anyone could really do with people liking that new Robbie Williams album.

Fox News gossip man Roger Friedman, in the US, has alleged that equity firm Terra Firma and its top man Guy Hands have all but lost hope in their chances of turning round the fortunes of London-based major record company EMI, and have left the company in chaos. The previously reported departure of former Google chief Douglas Merrill is a result of and adds to that chaos, he implies.

Freidman makes the allegations in a piece about Dhani 'son of George' Harrison's recent and previously reported comments about the continued efforts to get the Beatles catalogue officially available online. As previously reported, Harrison Jr last week said that Beatles company Apple Corps knew that it was counter-productive not having the Fab Four's music available via legit music services like iTunes, but said the right deal to put the band's music online had yet to come along.

Whereas Paul McCartney previously suggested the issue was the usual squabbles between EMI and Apple Corps over the Beatles catalogue, Harrison suggested that the bigger issue was their belief the Fab Four's music was worth more than 99 cents (or 79 pence) per track but that Apple iTunes, still the biggest player in the legit download space of course, wouldn't budge on per-track price point (actually Apple have just confirmed that their previously promised variable pricing system will go live next month, but ignore that for the time being). He suggested that EMI and Apple Corps were now considering setting up their own download store where they can have more control over things like price.

Friedman says that one plan was to set up a Beatles store on EMI.com, the major's current efforts to have its own digital hub, which launched last year in a sort of beta mode, and which could become the record company's own streaming and a-la-carte download service. The problem, Friedman says, is that EMI.com was one of Hands/Terra Firma/Merrill's grand plans, and has therefore gone on the back burner as those parties cut off their direct involvement with the major.

Which is how he gets on to making these claims about EMI. He writes: "EMI is in turmoil. Guy Hands, who bought the company with his Terra Firma firm, has pretty much bailed on the deal and is gone from running the company. Terra Firma has written off its investment in EMI and, not knowing what to do or particularly caring, has left the former music giant in a muddle. The result is chaos, sources say, within the EMI hierarchy. Just recently, Douglas Merrill, the head of EMI Digital, left his post after less than a year".

Hands and Terra Firma would presumably point out that they took more of a backseat role in the running of EMI once they had a CEO in place in its recordings division - Elio Leoni-Sceti - and that they are now letting his management team, much of it new recruits, get on with the business of fixing the major record company. Still, Hands' recent move into an 'investor placator' role at Terra Firma following the substantial negative impact of the EMI purchase on the value of the equity firm's portfolio, and Merrill's somewhat sudden departure for the major, will only fuel gossip that all is not well at the all new EMI.

Who'd have thought we'd end up reporting on executive changes in the private equity sector here in CMU? But yes, Guy Hands has stepped down as Chief Executive Officer of Terra Firma, the private equity firm best known round here, and probably overall, as the owners of EMI. He isn't leaving the equity outfit he co-founded though. He'll become Group Chairman and Chief Investment Officer, while his board colleague Tim Pryce, currently the firm's legal man, will become CEO.

I'm never sure what job titles like this mean in the investment sector, but I'm guessing that the move means Hands wants to spend more of his time talking to and possibly placating the people whose money Terra Firma is spending than overseeing the day to day affairs of the equity company and the companies it in turn owns. Given that the value of Terra Firma's overall assets has slumped, mainly because of its EMI purchase, it would make sense that Hands' top priority in the short term is keeping his investors sweet, which will seemingly be his main role in the CIO job.

Confirming the job change, Hands said in a statement: "Terra Firma has grown significantly since its creation in 2002. Over this period, staff numbers have increased from approximately 60 to over 110 people and assets under management have grown from 2 billion euros to 11 billion euros. As Chief Executive, Tim will be responsible for Terra Firma's day-to-day operations while I will concentrate on investments, investors and developing the business internationally".