When the investment group spent $6.3 million to buy the ailing major record label in 2007, it looked like a major gamble. EMI had suffered massive losses in the 2006-07 financial year and had shed almost half its market share. But worse was to come. Soon after the acquisition was completed, a number of recording artists, such as Radiohead, refused to renew their contracts with the company, and core executives left.
In its lawsuit against Citigroup, Terra Firma had alleged that the bank misled it into paying too much for the company, by misrepresenting competing bids. This is a claim which, even at the outset, looked bold for an experienced investor to be making. An investment bank doing that is like a poker player bluffing, and Terra Firma should have been wise to their moves.
Now the claim has finally been exposed for what it is and the cadaver has at last risen to the surface. The aquistion of EMI was poorly conceived. It was sold internally and to hoodwinked investors on the basis of upside revenue mirages such as digital distribution and the burgeoning Chinese music market. Yet three years later, you still can’t buy the Beatles catalogue on iTunes, EMI has all but evacuated the South East Asian market and the Federal Court in New York has uttered the words caveat emptor. There is nobody for Terra Firma to blame but the people who wrote the check.