HITS Daily Double
Sources are saying that Chrysalis is threatening to pull itself off the block and restart the auction process later this year.


Terra Firma Still Looking for the Dough to Carry Out Announced Firings, Acquisition of Chrysalis, Becoming Part of MySpace Music
It costs a lot of money to fire 2,000 people. That’s why the massive layoffs announced four months ago by Guy Hands haven’t yet taken place, according to three industry sources familiar with the situation. They told the N.Y. Post that EMI needs more money to cover the restructuring costs, which are running higher than anticipated. Once source said Terra Firma is looking to possibly raise another $60 million for EMI to help pay for the cuts. Multiple sources said raising the money was not going to be a problem for the firm.

A source close to Terra Firma vehemently denied the allegations, noting the firm just raised an additional $500 million in new EMI equity in January. The insider maintained there are no money problems associated with the music investment. Terra Firma insiders are attributing the holdup to European labor laws, which require a lengthy review process before pink slips can be handed out. The cuts are now expected by June, a source said.

As I.B. Bad pointed out in his column posted April 11, Terra Firma has yet to even notify most staffers of who will be staying and who will be going, and that the holdup is making it difficult to effectively execute many day-to-day functions, with frustrated employees uncertain of their future with the company.

It’s also hurting EMI's ability to make deals. Company insiders are blaming internal disarray on a reluctance to sign onto deals like the MySpace Music joint venture.

Then there’s the matter of Chrysalis Music. Terra Firma is one of two front-runners for the indie publisher, along with WMG, but is pursuing it as a separate investment from EMI to satisfy fund requirements on the maximum exposure it can have in EMI. But that deal, too, may be on the skids. Sources are now indicating to the Post that Chrysalis is threatening to pull itself off the block and restart the auction process later this year.

In a closely related matter, Citigroup is finding it virtually impossible to unload much of the nearly $5 billion in EMI debt it’s carrying, according to published reports out of London. A source confirmed these reports to the Post, adding that Citi was forced to leave EMI out of a $12 billion pool of leveraged debt the company sold off to a consortium of private equity firms out of concerns about its value. A source close to Terra Firma said Citi never approached the firm about selling the loan.

The Wall Street Journal reported that EMI's loan would not fetch the price of 88-89 cents on the dollar that Citi was hoping to receive from the sale. Citigroup is expected to write-down $10 billion in bad debt this quarter, largely from soured subprime loans.
This is the same issue that is threatening to kill T.H. Lee and Bain’s planned leveraged buyout of Clear Channel.