Terra Firma Lawyer to Call Citigroup Banker as EMI Trial Hostile Witness

The Citigroup Inc. banker accused of misleading Terra Firma Capital Partners Ltd. founder Guy Hands about the 2007 auction of EMI Group Ltd. will tell his story to a Manhattan federal jury as early as Oct. 25.

David Boies, the lead lawyer for Hands and London-based Terra Firma, told U.S. District Judge Jed Rakoff yesterday that he will call the banker, David Wormsley, as a hostile witness in the trial.

Hands claimed, in testimony over three days, that Wormsley misled him about the 2007 auction of London-based EMI Group Ltd., leading Terra Firma to overpay for the 113-year-old music company. Wormsley’s lawyers have contradicted Hands’s account of three crucial phone calls between them in May 2007, according to court papers.

The calls, which took place the weekend before the auction, are at the center of Terra Firma’s suit. Hands claims Wormsley, his former friend and business associate, told him that Cerberus Capital Management LP planned to submit a competing bid for EMI. In fact, New York-based Cerberus had withdrawn from the bidding, leaving Terra Firma without competition, according to court filings.

“If it wasn’t for those phone calls, they wouldn’t have been scrambling and they wouldn’t have put the bid in at that price at that time,” said Werner Kranenburg, a London-based lawyer observing the trial, summarizing Hands’s testimony.

Photographer: Louis Lanzano/Bloomberg

Guy Hands, founder of Terra Firma Capital Partners Ltd. Close

Guy Hands, founder of Terra Firma Capital Partners Ltd.

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Photographer: Louis Lanzano/Bloomberg

Guy Hands, founder of Terra Firma Capital Partners Ltd.

Wormsley will have to persuade jurors “that he wasn’t trying to convince his friend into rash actions over that weekend,” Kranenburg said.

Three Times

In testimony this week, Hands testified that Wormsley told him three separate times that Cerberus planned to bid 2.62 pounds ($4.11) a share for EMI in the May 21, 2007, auction. Wormsley also said that Terra Firma would have to bid at least that much or lose the auction. Terra Firma bid 2.65 pounds a share.

“He told me that Cerberus were there at 262, that the bid had to be in at 9 a.m. the next morning and he told me not to play any games with the price,” Hands testified.

Ted Wells, Citigroup’s lawyer, tried to show that Terra Firma’s 2.65-pound-a-share bid was based on due diligence the firm conducted before the auction, as well as conversations with EMI’s chief executive officer and Terra Firma’s estimate of the company’s worth, and not on any information passed along by Wormsley.

In pretrial rulings, Rakoff said that Terra Firma must prove that Wormsley lied to Hands or was reckless about whether his statements were true.

Two of the three phone calls at issue took place on May 18, 2007, three days before a Monday deadline for submitting bids, Hands told jurors. The third call came around midnight on Sunday, he said.

Cross-examination

On cross-examination, Wells contrasted Hands’s claimed memory of the three phone calls with his failure to recall details of other phone calls and meetings from the same time. Hands said he is unaware of any records that prove his version of what he and Wormsley discussed. Two Terra Firma executives, Tim Pryce and Riaz Punja, testified in support of their boss’s account.

Terra Firma claims that if it knew there weren’t other bidders, it would have pulled out of the auction to negotiate a better price and more advantageous due diligence.

The sale, which came at the height of the mergers and acquisitions boom, has been a money loser for Terra Firma.

Since Hands took over, musical acts including Queen, Paul McCartney and the Rolling Stones have left EMI. The company, which had a profit of 86 million pounds in 2006, reported a loss of 512 million pounds for the year ended March 31.

Wormsley Unaware

Citigroup, which loaned more than $5 billion in the $6.7 billion acquisition, claims Wormsley was unaware of the status of Cerberus’s bid and didn’t lie to Hands. New York-based Citigroup was stuck with the entire loan after the global credit freeze and once the true state of EMI’s finances became clear, according to court filings.

“The company we bought was not the company we thought we were buying,” Hands testified yesterday.

Hands is scheduled to complete his testimony when the trial resumes on Oct. 25. Wormsley may be called later in the day.

The case is Terra Firma v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York federal court at rvanvoris@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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