Citigroup seizes control of EMI amid legal troubles with Hands

LOS ANGELES Citigroup Inc. has taken over debt-strapped EMI Group Ltd., closing a disastrous purchase of the music label by Guy Hands, founder of British private equity firm Terra Firma.

The foreclosure by Citigroup, EMI’s main lender, brings the label of British acts such as The Beatles and Pink Floyd under American control until a new buyer can be found.

The takeover had been long expected, but came suddenly more than a month before Terra Firma Capital Partners Ltd. officially defaulted on roughly $5.48 billion of borrowings it took on to buy the label in 2007.

EMI’s cash flow was hurt by declining music sales and the debt became larger than its assets. Terra Firma’s equity in the company turned negative – much like a homeowner who owes more than the house is worth.

When restructuring talks between Citigroup and Hands became unproductive – and while they remain at loggerheads in a lawsuit – Citigroup pulled the trigger and seized control Tuesday.