Citigroup's takeover of EMI finally brings to an end Terra Firma's incredible three-and-a-half year ownership. Purchased for £4 billion ($6.3 billion) in May 2007 at the height of the credit market, EMI turned out to be a disastrous investment for the private equity firm. Books and business school case studies are sure to be written about how Terra Firma acquired and lost the storied music company.

From the beginning, it was clear Terra Firma chief Guy Hands would not be a typical music company owner. Immediately, he was openly critical of the way music companies operated. These perceived inefficiencies were the kind of low-hanging fruit that are often the basis of leveraged buyouts. Once new processes and practices were in place, Terra Firma believed, EMI could realize potential that had gone missing. So Terra Firma took a sledgehammer to the company. Thousands were laid off over the next few years and the organizational structure was overhauled into what Guy Hands called a "global functional matrix organization."

Under Terra Firma, EMI had a high level of executive turnover and some questionable hires. Elio Leoni-Sceti was named head EMI's recorded music division after executive stints at consumer products companies Reckitt Benckiser and Proctor & Gamble. A number of music executives, from Chris Roling to Jason Flom, were let go.

EMI made several high-profile attempts to revamp its digital business. Douglas Merrill was hired as president of EMI's digital business after being Google's chief technology officer. Cory Ondrejka, co-founder of virtual reality site Second Life, was hired to head EMI's digital strategy team and tasked with building new digital communities for artists and fans. Merrill resigned after less than a year. Ondrejka took Merrill's position and was out less than five months later.

Terra Firma's attitude toward artists and its precarious financial position made it unpopular with some managers and parts of its roster. Under Hands' watch, EMI lost such acts as the Rolling Stones, Paul McCartney and Radiohead -- although Radiohead probably would have left any major label they were signed to. And there's no telling how many acts were dissuaded from signing with EMI labels. One disgruntled artist manager after another took his complaints to the British press.

All the while, EMI executives and staffers went about their business. The recorded music division built Katy Perry into a global star, turned Lady Antebellum into a crossover success and took Coldplay to the top of the charts. EMI's share of the U.S. track-equivalent-album market rose to 9.6% in 2010 from 8.8% in 2008, according to Nielsen SoundScan. The publishing division, always a steady foundation, proceeded in relative peace.

Now, however, EMI appears to have achieved some much-needed stability. Roger Faxon took over as CEO of the entire company after heading the publishing division since 2007 (read's interview with him here). The global matrix was shelved in favor of stronger central leadership. And, most importantly, EMI's balance sheet is free of most of the debt that brought it to this place.

Forty-three months after being acquired by Terra Firma, EMI is now in a better position. Had the company trudged along indefinitely under a mountain of debt, it would be less able to merge, acquire or reshape itself. Citi will eventually find a home for one or both divisions. In an ironic twist, one of the bidders could very well be Hands...