Citigroup, Inc (NYSE: C) and EMI Group Agree to Hold Settlement Talks

Posted by on Aug 23rd, 2010

Citigroup, Inc (NYSE: C) and EMI Group PLC have agreed to have settlement talks during the month of September to attempt to settle a suit relating to the buyout of EMI by Terra Firma in 2007, according to a report from the Wall Street Journal.

During the height of an economic book, Terra Firma acquired EMI from Guy Hands’ private equity group for $4.2 billion in a highly leveraged deal largely financed by Citigroup. The deal went sour soon after completion as the recorded music market saw significant declines and debt syndications shut down as a result of the financial crisis, leaving Citigroup with about 3 billion GBP worth of debt on the loan.

Terra Firma and Citigroup have been litigating over the take-over with allegations that Citigroup mislead Terra Firm in the run-up to the 2007 purchase. Both sides have made legal depositions and a trial date is set for October 18th, however, representation on both sides agreed to enter into a mediation process to attempt to solve the case out of court.

While the two companies attempt to settle, The Wall Street Journal reported that EMI may be in danger of defaulting on banking covenants despite receiving several cash injections and a corporate restructuring that led to a decrease in its annual loss, citing EMI’s latest annual report. EMI executive Roger Faxton was promoted to take control of the company’s recording music operations and its more profitable publishing business during the month of June.

“EMI still faces considerable financial challenges,” said Maltby Capital Chairman Stephen Alexander in the company’s annual report.  “The group has GBP3.04 billion debt outstanding that falls due for repayment between 2014 and 2017.”

Shares of Citigroup, Inc (NYSE: C) traded down 1.06% on Friday ending the week at $3.75.