Jury Finds Terra Firma Just Made A Bad Deal In Buying EMI

from the well,-that-went-without-saying,,, dept

Way back when private equity firm Terra Firma bought record label EMI, we actually had some hope that by putting in place some folks with a different viewpoint, they might actually help EMI make the transition to the new world that the other record labels were unwilling to do, since they were too tied to the past. And there were a few encouraging early signs. EMI's new boss, from Terra Firma, Guy Hands, told everyone at EMI that Radiohead's business model experiments should serve as a wake-up call to respond to new challenges with "creativity and energy," rather than lawsuits. Along those lines, he also threatened to withdraw from the RIAA and the IFPI. Finally, he hired two big name techies: including Google's former CIO and Second Life's co-founder.

However, there were also indications that the company was still very much unable to adjust, and didn't really welcome those outside views. Part of it, apparently, was that EMI's attempt to negotiate new deals with its biggest artists was done in a somewhat tone deaf manner, which pissed off those artists, who got the impression that EMI was trying to take advantage of them rather than trying to help them. On top of that, the company backed down on its threats to leave the IFPI and the RIAA... and instead became one of the more aggressive record labels in suing innovative start-ups and directly suing their execs in attempts to bankrupt them. It wasn't much of a surprise that the two tech superstars EMI hired both left pretty quickly, as it became apparent they were marginalized within the company.

With this approach, not surprisingly, EMI has suffered massively in the market, and last year, Terra Firma tried to pin the blame elsewhere by claiming that Citigroup had mislead the firm into buying EMI, convincing the private equity firm to overbid. As we noted at the time, this seemed hard to believe. It was no secret that the record label business was in bad shape at the time and really needed a different approach if it was to survive. The problem was that, for all of the early talk, Terra Firma and Guy Hands never really figured out a way to change the company at all.

Now a jury has ruled against Terra Firma saying that Citigroup did not mislead Terra Firma and, basically, Terra Firma just made a bad deal. Considering how they've run EMI, perhaps this is not too surprising. Of course, this also means that Terra Firma is not going to get out of the massive debt obligations it owes Citigroup, which likely means that Citigroup will get to takeover EMI, meaning it will sell off the pieces (most likely to Warner Music) knocking the major record labels down to just three: Universal, Warner and Sony. It seems that, as long as they keep merging, they can pretend that it's okay that they refuse to adapt.

Filed Under: record labels
Companies: citigroup, emi, terra firma

Private Equity Firm That Bought EMI Sues Citigroup For Misleading It Into Deal

from the oh-come-on dept

You had to be pretty clueless in 2007 not to recognize that the major record labels were seriously struggling. Still, we thought that the decision by private equity firm Terra Firma to buy EMI in 2007 might actually be an opportunity for a major record label to change, since the new bosses did not come from the recording industry, and weren't saddled with silly preconceived notions about how a major record label had to do business. And, early on, things actually looked positive. New boss Guy Hands was quick to embrace Radiohead's experiment and let everyone at EMI know that they needed to learn from it, rather than deny it or freak out about it. He also threatened to leave both the IFPI and the RIAA if they didn't stop suing fans (eventually he stuck with both, but cut their allowance). On top of that, he hired some smart outsiders to help.

Since then, however, everything has pretty much collapsed. While they weren't saddled with preconceived notions, they were saddled with dreadful contracts, and every attempt to change them resulted in charges from EMI's biggest artists that the company was trying to screw them over. On top of that, the company started giving really mixed messages. At times it seemed to be embracing the new, and at other times, it would try to personally bankrupt the CEOs of innovative startups. It didn't take long for the tech experts EMI brought in to quit. Then, there were stories of infighting at Terra Firma, with arguments over what to do with EMI altogether, which could explain some of the contradictory strategy decisions.

Either way, Terra Firma has now decided to sue Citigroup for misleading it into the deal. Again, given the state of the recording industry, it's hard to see how they thought it was going to be a good deal in the first place, but Terra Firma claims that Citigroup lied to Terra Firma about other bidders to get the firm to pay more and pay now -- noting that Citi had a major conflict of interest in acting both as an advisor and a financier of the deal. Of course, that's how investment banks make their money anyway. They want deal flow, so they have a neat little script that always encourages more deal flow. At times, they talk about synergies, and why companies need to buy each other, and then once they get big, they talk about spinning off parts to "unlock shareholder value." You can't trust those guys for an honest assessment of such a deal, and if Terra Firma did so, it seems like it should be the firm's own fault.

Filed Under: lawsuits, music industry
Companies: citigroup, emi, terra firma