Forcing their Hands

14 December 2009 By George Hay Follow @gfhay

The Terra Firma boss claims his advisor misled him in the auction for his music deal two years ago. Citi denies the charge. But the two sides are already at loggerheads over the restructuring of EMI’s debt. By choosing such a drastic option, Hands risks looking desperate.

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Terra Firma, the buyout group led by financier Guy Hands, has filed a lawsuit against Citigoup in an effort to recover billions of dollars from its troubled 2007 takeover of EMI, the music publishing group.

In a lawsuit filed in New York, Hands alleges that David Wormsley, Citi's senior UK mergers and acquisition banker, "misrepresented fundamental facts about (the) auction to Terra Firma including misrepresenting that there was another bidder and the price at which that bidder was bidding." Hands claims Wormsley told him that Cerberus Capital Management, another buyout firm, was still bidding when it had withdrawn.

Terra Firma claims that Citi earned 92.5 million pounds in fees from its various roles as lender, broker and M&A advisor, as well as committing 2.5 billion pounds of financing on the deal. The lawsuit claims Terra Firma paid a "fraudulently inflated price for EMI", and would not have bid if it had known the full facts.

Terra Firma also claims that Citi "has not acted as a normal lender", claiming the bank has "sought to wrest control of EMI by pushing it into, or to the brink of bankruptcy".

The lawsuit claims Citi published a research note in September that was a "broadside attack on Terra Firma, its investment in EMI, and its reputation". This was done in order to "create marketplace uncertainty about EMI's ability to operate as a going concern", and ultimately to "allow Citi to wrest control of EMI from Terra Firma". It alleges Citi intends to sell EMI to its rival Warner, "thus maximising its recovery on EMIrelated loans, and generating additional investment banking fees from Warner".

A spokesperson for Citi said the bank strongly refuted the allegations.

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