EFTA00763699.pdf

From: To: "Jeffrey Epstein" <jeevacation@grnail.com> Subject: EMI worth £2bn less than we paid, Hands says Date: Mon, 15 Feb 2010 11:15:13 +0000 Importance: Normal EMI worth £2bn less than we paid, Hands says By Andrew Edgecliffe-Johnson Published: February 14 2010 22:46 I Last updated: February 14 2010 22:46 Guy Hands, the boss of private equity group Terra Firma, has admitted EMI is worth £2bn (83.1bn) less than he paid for it in 2007, in a calculation that could provide a valuation benchmark for any future sale of all or part of the indebted music company behind Coldplay and Lily Allen. Mr Hands wrote last November to Citigroup <http://markets.ft.com/tearsheets/performance.asp? s=us:C> , the bank that financed the ill-fated £4.2bn takeover by Terra Firma, proposing a "complete restructuring of EMI" based on a new enterprise value of just £2.2bn. The letter, filed by Citigroup with a New York court on Friday, is the first official acknowledgement that Terra Firma's equity is all but worthless. Mr Hands offered to raise £lbn of new equity if Citigroup would write off £lbn of debt, before suing the bank after it turned his offer down. Mr Hands' proposal <http://www.ft.com/cms/s/0/2d1fe7b2-ecOb-11de-8070-00144feab49a.html> valued EMI Music Publishing at £1.46bn and EMI Music, its record company, at less than £800m. Terra Firma has written down its original equity by 90 per cent. The offer "would enable Citi to realise a certain and quick recovery" at a significant premium to the valuation of Warner Music, EMI's closest rival, he argued. Citi refused to write off debt without getting something in return, saying it did not see "sufficient value". The letter discloses that Mr Hands offered to split EMI in two, a move that could have ringfenced its more stable music publishing arm, protecting that part of Terra Firma's investment should EMI Music breach covenants on Citigroup's loans, as it now risks doing. Separating recorded music from music publishing could also have paved the way for a sale of one or both divisions, according to a person close to the company. Another person close to the company said this was not Mr Hands' motivation. Mr Hands' statement that he believed Terra Firma and Citigroup were "in agreement in relation to a number of key components of an acceptable solution, including the need to separate the two businesses", is likely to encourage would be-bidders. Warner Music has said it sees no regulatory hurdles <http://markets.ft.com/tearsheets/performance.asp?s=us:WMG> to a bid for EMI Music. Industry observers believe EMI Music Publishing would attract offers from private equity firms and pension funds should it come up for sale. Mr Hands' letter highlights his concern about "adverse publicity" if no agreement were reached with Citigroup before his EMI acquisition vehicle filed accounts for the year to March3.Thoseaccounts, released this month, showed auditors had "significant doubts" about the company's ability to continue as a going concern. Terra Firma now needs to raise £120m from investors by June, or risk losing control of EMI to Citigroup. The letter also shows concern about EMI's pension liabilities EFTA00763699 <http://www.ft.com/cms/s/0/33e0bc9c-11cd-lldf-b6e3-00144feab49a.html> . The proposal to Citigroup included injecting £75m upfront to the pension scheme and m in payments over nine years. Citigroup, which denies Terra Firma's claim that it fraudulentlymisrepresented the position of a rival bidder in the 2007 auction, said in its court submission that a London trial would not jeopardise the Terra Firma chairman's status as a tax exile in Guernsey. Terra Firma argued this month that the case belonged in New York. This message is confidential. It may also be privileged or otherwise protected by work product immunity or other legal rules. If you have received it by mistake please let us know by reply and then delete it from your system; you should not copy the message or disclose its contents to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of Asia Gateway Ltd. shall be understood as neither given nor endorsed by it. Asia Gateway Ltd. Michelin House 81 Fulham Road London SW3 6RD UK Tel: Fax: EFTA00763700