Terra Firma, the private equity fund owned by Guy Hands, has just paid £12 million ($19 million) in dividends to its founder chairman. Terra Firma has seen some reversal of fortunes in recent times with its most prominent investment in music company EMI Ltd being written down to zero, losing a court case against the Citigroup and falling profit from its operations.
The dividend paid in 2010 amounts to five times of the funds post tax profit of £2.3 million and substantially higher than what it had paid in 2009 – £25,000. The fund reduced its staff strength by 20 in 2010.
According to December 31 filings available with the UK’s Company’s House, Terra Firma made the payment to London 58 Ltd, a company owned by Mr. Hands, but registered at the Cayman Islands. The cash will be used to bring down the debt on the balance sheet of Hand Picked Hotels – a chain of country house hotels owned by his wife Julia. The chain had last year paid £20 million out of £120 million debt, a person aware of the developments said.
Terra Firma specializes in Leverage Buy Out (LBO) deals, a specific kind of Private Equity investment and has €5.4 billion ($7 billion) under management. The company is owned by London 58 and had bought music company EMI for a whopping $7 billion. To make matters worse, Mr. Hands infused an additional £105 million in June ’10 to avoid breaching loan covenants on about £2.5 billion of debts. Mr. Hands had sued Citigroup Inc. for misleading him into the EMI investment – Terra Firma had put £1.7 billion in equity of the total £4.2 billion deal, which the Citigroup had helped finance. However, he lost the suit in November, ’10 in his hope of recovering part of the money from Citigroup vanished.
EMI is expected to breach on loan covenants due for April but few expect Mr. Hands to infuse fresh equity this time around. Nobody expects Citigroup make any concessions on the debts of EMI either and bidders like Warner Music and KKR’s (Kohlberg Kravis Roberts) BMG Music Publishing are understood to be in the fray to bid for whole or parts of UK’s biggest music company.
What do you think about the ownership changes of some of UK’s most iconic brands.