Battered Hands loses £2bn as Citi gains control of EMI

Private equity baron Guy Hands has relinquished control of EMI to Citigroup in a move that paves the way for a sale of the label that launched the Beatles and Rolling Stones.

The humiliating blow crystallises a near £2bn loss for Hands' Terra Firma group and confirms the £4.2bn EMI takeover as the worst deal in the tax exile's long City career.

After yesterday writing off £2.2bn of EMI's crushing debt burden, Citigroup is expected to auction EMI later this year

EMI facts and figures

A sale of EMI could presage a wholesale shakeout of the music industry, which has been left reeling by the digital revolution and rampant internet piracy.

A merger with America's Warner Music is currently the most likely long-term option for EMI.

But Citigroup may also look to sell off the British group's highly profitable music publishing wing to US buy-out fund KKR and Germany's Bertelsmann, who together are buying niche UK publisher Chrysalis.

Under that scenario, the record music wing  -  home to acts such as Gorillaz and Lily Allen  -  could then be sold to either Sony or Universal, which are the world's biggest music labels. In an extraordinary twist, Hands could end up back in control after apparently securing the backing of a number of new investors to launch a bid for EMI.

However, a source close to the situation said the prospect of Hands resuming his musical odyssey was 'hard to see happening' given the bruising three-and-a-half stewardship of EMI.

Another source told the Mail that the US bank, which bankrolled the disastrous deal, is in 'no hurry' to off-load the music group. Citigroup is understood to be impressed by new EMI boss Roger Faxon, and is happy to wait for 'creative tension' to build up among the potential bidders. Hands was forced to pull the plug on his biggest-ever deal after investors in his Terra Firma fund refused to pour more money into EMI.

Citigroup loaned Hands around £2.6bn to fund the illfated takeover. But the struggling EMI repeatedly breached the loan agreements, requiring Terra Firma to administer more than £100m worth of so-called 'equity cures'.

In a last ditch attempt to salvage something from the wreckage, Hands last year launched a multi-billion pound fraud lawsuit against the US bank. In a New York courtroom, he accused his one-time friend and Citi advisor David Wormsley of tricking him into paying too much for EMI.

But it took the Manhattan jury took just four hours to dismiss the complaint, leaving Hands' reputation in tatters.