Holiday Stew: The New Universal Music Group Taking Shape & is EMI Coming Undone?
Hands tied over EMI?
2010 is speeding to a halt in the coming weeks and there’s no shortage of hubbub within the industry, as a number of big changes are looming on the heel of a year already fraught with tumult. Just last week came confirmation of Barry Weiss’s rumored departure from Sony Music to take a top level position within Lucian Grainge’s new blueprint for Universal Music Group, with all signs indicating that he will act as Grainge’s primary lieutenant on the East Coast while the new UMG chief resides in Los Angeles… The news of Weiss’s move was followed, almost immediately, by buzz that Doug Morris is now the likely shoe-in for the top spot at Sony, taking the place of outgoing Rolf Schmidt-Holtz. Recent times have seen bigger problems at Sony than Coca-Cola coming through the faucets, leaving many to wonder if the veteran executive could help turn around the struggling operation… And reports over the weekend are indicating that EMI Music might be headed for a takeover by Citigroup before the end of the year – a result of Guy Hands courtroom defeat and being stonewalled by investors in his recent fundraising efforts… It all leads to an outlook filled with questions and ripe with speculation. Stay tuned…
12.9.10More Bits & Pieces… Terra Firma Investors Balk at Fresh EMI Funds, What Kind of $$ Spotify Could be Generating in the U.S. & More…
Investors weary of future
More bad news for Guy Hands, as The NY Post reports that Terra Firma investors are extremely cold on the idea of putting more funds in EMI, as the private equity firms’ next debt obligation to Citigroup comes up in March of 2011… It’s already known that Spotify won’t be landing in the U.S. before the end of the year, with no indication from CEO Daniel Ek on a new timetable, but Evolver.fm takes a look at what kind of subscriber statistics and revenue the digital music service could be generating if it were operating in the states… Speaking at the LeWeb conference yesterday MySpace CEO Mike Jones was defensive of the social network’s seriously waning status, saying, “I don’t wanna be the place that replaces iTunes. I wanna be the place where you learn about music and then take that to wherever your music consumption happens.” An admirable position, and true in the aspect that the site continues to act for the most part as an initial place one can listen to an artist, though the discovery element is lacking, with some recognition from Jones, adding “We do need to get better at surfacing the music that interests you”… Elsewhere, Howard Stern renewed his contract with Sirius XM for another five years, the sum is undisclosed at this point… Apple is beginning to roll out increased song samples in the iTunes store… And Madison Square Garden in is the process of completing a deal to purchase the L.A. Forum…
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Situation at EMI: Was Exec Shuffling Ahead of Verdict Early Signal of Break Up?
Exec cost cutting ahead of sale?
In the wake of a courtroom defeat for Guy Hands and Terra Firma in the legal action brought against Citigroup, all talk has turned to the fate of EMI. With the likelihood of more investors stumping up funds to keep the company in control of its current owners slim, and a dept-for-equity swap with Citi or even licensing content to another major music group, an avenue that was explored previously, exist in the realm of possibility, almost all signs indicate that one way or another the music company will fall into new hands (no pun intended). The list of suitors currently being thrown around includes the usual suspects who have had an eye on EMI’s recorded and publishing sectors, such as BMG Rights Management, Warner Music Group and Sony/ATV. But a look at executive movement within EMI over the past months seems to indicate that a sale or break up of the company may have been a foregone conclusion. Back in June Roger Faxon was named Group Chief Executive, moving him over from his longtime leadership at EMI Music Publishing, and soon after executive house cleaning began with Faxon ultimately tapping Dan McCarroll to take the reigns as prexy of Capitol & Virgin Label Group just last month – McCarroll was also plucked from EMI’s pubco where he was previously EVP of creative. And last week saw the news of Rob Stevenson’s exit from the label, after being installed as President of Virgin in 2008 under now departed Nick Gatfield. Names of possible replacements being rumored include more execs already planted within the EMI structure. So are all the internal moves simply a reversal in the earlier unsuccessful practice under Hands to bring in outsiders? Or as some are indicating, is it to minimize costs ahead of a sale and reduce the typically high expense of hiring outside for creative executive positions? Stay tuned…
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Terra Firma vs. Citigroup: Jury Deliberates
Label's Fate in Jurors Hands?
[UPDATE: After just 4 1/2 hours of deliberation, the jury has ruled against Terra Firma in the case it brought against Citigroup, which could possibly force Hands to relinquish control of EMI to the bank...] Yesterday the jury in the trial between Terra Firma and Citigroup over the 2007 acquisition of EMI heard closing arguments from both sides. David Boies, attorney for Terra Firma, gave an impassioned speech to the eight remaining jurors, which lasted over two hours, essentially explaining that if it were true that Citi’s David Wormsley had not mislead Guy Hands into thinking there was a rival bid for the storied music company, then he of course wouldn’t have gone through with the auction purchase, saying “If they hadn’t believed Cerberus was bidding, if they didn’t believe there was an active auction, why would they have gone ahead and submitted a bid?”. Citi attorney Ted Wells gave a very matter-of-fact argument that his client never mislead Hands, and there was no concrete evidence provided during the trial to prove otherwise. The basis of his closing argument being that Hands was brash in thinking that he could turn “tin into gold” and that he only brought the case about because he was upset over his poor investment, saying of Hands, his “magic sauce didn’t work this time.”
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Terra Firma vs. Citigroup: Cat-Fighting & Juror in Question
More Bad News for Hands
This week is expected to be the last in the trial that has Guy Hands pitted again U.S. bank Citigroup, in the well publicized disputed over Terra Firma’s 2007 acquisition of EMI. Hands received more bad news as proceedings resumed this week, with the Judge, who called the case a “cat-fight between two rich companies,” ruling that the jury will not be allowed to consider “punitive damages,” and it also looks unlikely that the Judge will allow the plaintiff to pursue “consequential damages” – the additional debt obligation funds that Hands and his investors dumped into EMI this past June. Citi lawyers have also sought to remove a juror from the panel, because her name appears in the credits for Michael Moore’s film Capitalism: A Love Story under “special thanks” – there was not an immediate ruling on the request for removal. The jury is expected to start deliberations on Wednesday…
[*UPDATE: The juror in question Donna Gianell, was in fact removed from the trial by the Judge Rakoff on Tuesday evening, though the reason given was that she lied to the court about having a conversation about the case with other jurors in an elevator... Ted Wells, lead Citi attorney said of Moore's film “This movie is so insidious,” including “You got to have a verdict at the end of the day that people will respect.”]
[**UPDATE: New York Times DealBook talks to the dismissed juror]
10.29.10Terra Firma vs. Citigroup: No Lost Profits for Hands
Yesterday Judge Jed Rakoff, who is presiding over the Terra Firma case against Citigroup, ruled that he would not allow testimony from a Terra Firma witness to demonstrate a theory of “lost profits,” essentially cutting possible damages the investment firm is seeking by 1/4 of the original $8 billion sought – it was one of three theories the plaintiff’s team had based their claims for damages on. Guy Hands lawyer David Boies also withdrew another theory that Hand’s company, if victorious in the case, would receive compensation for being “locked in” to the EMI investment while its value fell, which could have been calculated in the amount of $2 billion. The prevailing angle now is that of “fair market” which potentially could see damages awarded in the same amount, though it hinges on how market value is calculated – of course this is all presuming a victory for Hands. Two of Terra Firma’s fund directors in the EMI investment also testified yesterday, recalling two separate occasions that would support the alleged phone conversations regarding the Cerberus bid.
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Terra Firma vs. Citigroup: Big Love & Playing Games
The Worm Testifies
Yesterday saw the end of Guy Hands testimony in New York City. Facing repeated questions about the lack of evidence proving his alleged phone conversations with Citigroup’s David Wormsley took place, Hands stated that he “never kept notes. Even at university,” due to illegible handwriting from dyslexic and dyspraxic conditions… Wormsley also took the stand for the first time yesterday, though for only a short time, less than 30 minutes, primarily trying to establish his trustworthy standing with Hands and his firm, telling Terra Firma lead attorney David Boies “I would always be as truthful and honest as I could be.” Boies also provided a number of email exchanges that show Wormsley’s early focus on wooing Hands and Terra Firma, presumably in an effort to start the process of leading jurors on a path that ends with The Worm’s lack of integrity as a trusted advisor to Hands being exposed. One such exchange had Wormsley writing in an email to another (now former) Citi executive, For reasons I won’t go into, we have to show big love to Terra Firma. To that end, it would be very helpful if you had an hour in London next week to sit down and meet with the Terra Firma team and hear their story... Today Wormsley’s testimony continued, with more phone calls and emails being brought to light – one of which was a call to Wormsley from a member of the EMI deal team relaying a conversation with Hands in which he disclosed Wormsley had tipped him that a bidding price for the music company at 2.4 pounds per share would be approved. Wormsley said he was “furious” about the call, and wanted Hands to send a “written confirmation” to the EMI team declaring that conversation had not happened – this came after testifying earlier that Hands had a reputation for making “low-ball offers.” Also during his time on the stand today, he stated that Citigroup did not act as an advisor to Terra Firma on the deal, and that a majority of his correspondence with Hands dealt with financing aspects. In another email that was revealed, sent to EMI’s Eric Nicoli hours before the bidding deadline, Wormsley indicated that he had told Hands not to “play games on price.”
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Terra Firma vs. Citigroup: More Testimony On Alleged Phone Calls
All Hands on Deck
During the second day of cross examination by Citigroup attorney Ted Wells of Guy Hands, the Terra Firma boss found it difficult to provide concrete evidence of the three phone calls between May 18 and May 21 during which Hands claims Citi’s David Wormsely told him Cerberus Capital Management was also prepared to bid on EMI – phone calls upon which almost the entire case hinges. Today two Terra Firma employees had better recollections, testifying in support of Hand’s claims, with Riaz Punja, who oversaw the team in charge of due diligence for the EMI deal, codenamed Project Dice, stating “Guy called me up over the weekend and he said, ‘I’ve just had a conversation with David Wormsley and he tells me that Cerberus is in. They will be bidding tomorrow, and they will be bidding a price of 262.’” Punja, who later became financial managing director at EMI, also told jurors that the codename was in reference to the Rolling Stone’s song “Tumbling Dice.” A second Terra Firma employee testified that she had taken notes indicating “other bidders – one at 262″ during an investment advisory committee the day prior to the auction.
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Terra Firma vs. Citigroup: Paperless Trail
In his cross examination of Guy Hands today, Citi attorney Ted Wells inquired about Hand’s proof of his conversations with David Wormsely, which are primary to Hand’s claim that The Worm misguided him through his auction acquisition of EMI, asking, “You cannot identify one single piece of paper in the corporate records that reflects that you had a conversation with David Wormsley about his representation that Cerberus was going to bid 262 on Monday, May 21?”
Hands Cross Examined
With Hand’s replying, “I’m not personally aware of any, no…”
On Tuesday Hands testified that on a few separate occasions he had phone conversations with Wormsley during which he told him that Cerberus Capital Management was offering to pay 2.62 pounds per share for EMI. Asserting that had he known it was a “busted auction,” Terra Firma would have had more time to perform due diligence, telling jurors, “In an auction process the company determines the information you can get. In a non-auction acquisition you get much more leverage.”
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Terra Firma vs. Citigroup: Opening Statements
Trial over EMI acquisition begins
In day one of the showdown between Terra Firma and Citigroup in New York City yesterday, lawyers from both sides did little to mince their words…
Said David Boies (representing Terra Firma), of Citigroup’s David Wormsely, he was “playing two sides of the street at the same time.”
“Mr. Hands thought he had the golden touch,” said Ted Wells (representing Citigroup) of Guy Hands – “He did for quite awhile until he bought EMI.”
The only witness to take the stand was Tim Pryce, former Terra Firma general counsel and current chief executive, who was asked if the EMI Music acquisition codename Project Dice was “meant to convey a dicey transaction?”
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