Special Report: Guy Hands, Citigroup and the fight for EMI

Fri Jun 11, 2010 6:04am EDT
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By Simon Meads and Kate Holton

LONDON (Reuters) - One of the best ways to get inside the head of British private equity boss Guy Hands is to study what gift he gives for Christmas. For years, Hands has sent friends and business associates a book he has recently read along with a letter discussing the work. The gift is designed to be both thoughtful and thought provoking.

Last Christmas, Hands chose "The Trouble with Markets," a work by London economist Roger Bootle. "I was particularly struck by his view that financial markets are distributive by nature and provide little benefit to society, rewarding those involved in markets out of proportion to the value of their work to society," wrote Hands of the book, which is subtitled "Saving Capitalism From Itself."

"That analysis seems particularly apt in view of the quick and remarkable return of the bonus culture to the banking world. Furthermore, in my view, such high pay levels attract many of the most talented individuals in society thus removing them from more entrepreneurial, creative or leadership roles in the 'real' economy."

Cynics might laugh at the idea of Hands as a defender of the real economy. In his heyday, the outspoken financier was known as the king of British private equity. More than anyone, Hands brought to Europe the idea of using cheap debt to pump apparently miraculous returns from dowdy businesses.

Three years ago, at the height of the bubble, Hands and his group Terra Firma bought British music company EMI -- home to artists from the Beatles to Kylie -- for 4 billion pounds, loading up on debt to finance the deal. As the financial crisis tightened, the deal began to unravel. Crippled by debt and spiraling interest payments and hit by a stronger U.S. dollar (in which some of the debt is priced), Terra Firma has struggled to keep control of its prize.

The EMI deal has become a symbol for the worst excesses of the boom era private equity world. Hands himself stands as "an example of what has always been wrong with private equity," says a former colleague at Nomura, who asked not to be identified so he could speak frankly. "They rode the wave of a bull market in debt but were not humble enough to know that was what they were doing."


Famously tough and a fiery-tempered negotiator, Hands, 50, seems determined to hold onto his music firm. Despite debts of 3.3 billion pounds, Terra Firma has been unwilling to give its bankers Citigroup an inch in restructuring talks.   Continued...