Terra Firma LPs co-investing £200m in EMI

Terra Firma will tomorrow launch its overhaul of the UK record business after buying it for £3.2 billion at the height of the buyout boom. It is expected to confirm job cuts at the company.

Investors in Terra Firma funds are taking a circa £200 million ($392.6 million; €263.4 million) equity stake in UK music business EMI, according to the firm’s spokesman. This will lead to Terra Firma decreasing its equity stake in the business from £1.5 billion to £1.3 billion.

Guy Hands:
Backed by LPs

This is the largest uptake of co-investment rights in Terra Firma’s history, the spokesman said.

The uptake by limited partners of a stake in the deal comes five months after the buyout firm acquired the company for £3.2 billion. The deal was fully financed by US bank Citi shortly before the problems in the worldwide credit markets became apparent. The debt in the deal is regarded as difficult to syndicate due to problems in the recorded music industry at large, according to sources in the credit markets. 

The buyout firm is expected to cut 1500 to 2000 jobs at the music company, according to the UK newspaper Financial Times

Last week Tony Wadsworth, chairman and chief executive of EMI in the UK and Ireland, left EMI. Wadsworth’s departure followed the resignation of the company’s chief executive Eric Nicoli and its chief financial officer Martin Stewart in August after Terra Firma received shareholder acceptance for its offer in the same month.

The turnaround that Terra Firma must accomplish at EMI is widely believed to be Herculean. Hands told the FT that 85 percent of artists at the company lose money and that £70 million a year is spent subsidising 15 percent of artists that would never produce an album. 

The group has exceeded marketing budgets by about £60 million a year and wastes £25 million a year scrapping unsold CDs, Hands said. Seventy percent of the company’s profits come from the recorded music business which handles the company’s glittering back catalogue.

Some of the most famous stars at the record label have left the company since Terra Firma acquired the company, including alternative rock band Radiohead and ex-Beatles musician Paul McCartney. The manager of pop star Robbie Williams has also reportedly expressed discontent with the buyout firm’s handling of its staff. 

Despite his spat with Radiohead, Hands said the UK rock band had made the right decision to release the album on the internet first and then later as a premium box set. The Terra Firma executive bought the latter edition.