Over the past couple of days, most business pages have reported on EMI’s downfall. If anything, the people who are working in the business have done well. Despite a tough business environment, operating profits and market share are up. But, back in the days of cheap and easy credit, EMI was bought with debt by a private equity company led by Guy Hands. It wasn’t its music and entertainment business that screwed EMI, it was the financial engineering which came with private equity ownership. As the Guardian’s Julia Finch explains:
EMI’s music business – which has a heritage stretching back over 100 years – has actually performed well: with profit before financial charges up 81% to £298m as its chief executive, Elio Leoni-Sceti, has cut costs and grown market share by finding and promoting new musical talent. EMI’s Capitol Nashville label has the number one album in the US this week, with country and western band Lady Antebellum.
But Maltby [the company set up by Hands to acquire EMI]…. has plunged £1.75bn into the red as a result of a £1bn financial writedown, a vast interest bill, derivative and foreign exchange losses and restructuring costs.
So all those people who worked so hard to improve EMI’s performance are going to be screwed anyway.
This time, though, it looks as though the financiers are going to get seriously burnt too. In a last-ditch move to avoid huge losses, Guy Hands is suing Citibank, who lent him more than half the money and advised him on the takeover, claiming that the bank tricked him into buying EMI.
Now, just think about that for a minute. We’re being told a story of Citibank as the corporate Del Boy and poor Guy Hands as the hapless punter. Hands has bought and sold more companies than most people work for during their lives. He must surely know everything there is to know about due diligence, valuing companies and not paying too much for them.
He must be even more desperate to get his cash back than he is to preserve his reputation. If the court finds that Citibank did, indeed, trick Guy Hands, he will be left looking just as stupid as the mugs who pay over the odds for dodgy goods out of suitcases in Peckham Market.