By all accounts, EMI’s Grammy party at the Hollywood “W” Hotel was impressive.  But one there was one significant absentee from the celebration:  Guy Hands, Chief Executive of Terra Firma, the in vestment that purchased EMI in 2007.

EMI is a British company with a 113 year history of making music.  Globally, EMI is home to such well-known acts as Coldplay, Norah Jones, Snoop Dog, The Spice Girls, and even, yes, the Beatles.  EMI’s Nashville-based labels are home to, among others, the Nashville’s successful talent, such as Lady Antebellum, Darius Rucker, and Keith Urban, not to mention old faithfuls such as singer-songwriter, Guy Clark, while the Nashville-based publishing arm of EMI is home to Tom Shapiro, John Paul White and Steve McEwan, to name a few.  And then, there is the Nashville-based Christian side of the business, EMI’s Christian Music Group.   Despite these success stories, in the days following the extravagant Grammy celebration, events transpired which called into question the financial stability, nay, even the very future, of those organizations as separate entities.

The winds of change started blowing way back in 2007, when the struggling entertainment empire was purchased by Hands and his venture capital firm, Terra Firma, for somewhere around 6.5 billion U.S. dollars.   The VC firm had a reputation for turning around troubled companies, including a roadside gas station company, an aircraft-leasing business, Australian cattle ranches, and a natural-gas network.

Some of the $6.5 billion purchase price was funded by the investment group, but the remaining balance, somewhere in the range of 4 billion, was financed by Citigroup.  Citigroup’s agreement to lend out that much money was contingent upon performance level targets.  The current consensus is that, despite over 13 million in sales of the old Beatles catalog, EMI has failed, and will continue to fail, to meet the performance targets, unless Terra Firma comes up with additional $200 million in capital contributions by the end of the summer.  If that doesn’t happen, Citigroup, itself struggling from the weight of bad debt and government scrutiny, could take the keys to the company and then, likely flip it into the waiting arms of Warner Music CEO, Edgar Bronfman, who has long wanted the EMI pro perties, changing the landscape of the music industry.

It is rumored that when Hands first met the EMI executive team, he told them if he didn’t make the deal work, he would lose over $310 million.  So, for obvious reasons, Guy Hands didn’t attend the recent EMI soirée, choosing instead, I imagine, to remain in his lavish estate on the Isle of Guernsey in the English Channel, where taxes are almost non-existence, making it a popular financial center for British venture capitalists.  Regardless of where Hands is now,  however, this entire power struggle will likely play out by the end of the summer.