- Guy Hands accuses Klein, Leat of misleading him in EMI bid
- Terra Firma alleges bank concealed record label’s struggles
Guy Hands accused two more senior Citigroup Inc. executives of fraud as he battles to recover billions of pounds in losses accrued by Terra Firma Capital Partners’ disastrous takeover of EMI Group Ltd. nearly a decade ago.
Lawyers for Hands made the allegations Tuesday against Michael Klein, then Citigroup’s head of global banking, and Chad Leat, then Citigroup’s co-head of global credit markets. Hands is trying to prove -- after losing a lawsuit in New York -- that Terra Firma only spent the 4 billion pounds ($6 billion) on the struggling record label because the bankers misled him. The private-equity firm is seeking damages of about 2.5 billion pounds.
During a May 2007 phone call, Klein "said he thought so highly of EMI, but for the fact Citi was conflicted as sell side, Citi would want to invest alongside Terra Firma and would be interesting in co-investing once deal was done," Terra Firma’s lawyer Anthony Grabiner said in his opening remarks during the first day of the trial in London. "Citigroup thought the quality of the business was in fact poor."
The deal lost money for everyone involved, and hurt Hands’s reputation. Hands has said that he only agreed to the acquisition of the Beatles record label because a Citigroup banker, David Wormsley, lied to him in phone calls before the 2007 EMI auction about the presence of a rival bidder.
In the London trial, new allegations include that Klein and Leat convinced Hands to commit an extra 200 million pounds to the transaction by agreeing to finance the acquisition, Grabiner said. Unknown to Hands, who thought Terra Firma and Citigroup would work together "as partners for the 7-year financing term,” Citigroup planned to put the loan straight into the the bank’s unit for distressed debt, called Institutional Recovery Management, he said. The bank says Hands knew all along.
"Citi claims that, in the same conversation, Hands volunteered a couple more hundred million and at the same time was told it’s going into IRM," Grabiner said. That "beggars belief."
Terra Firma lost the first round of litigation in New York but won a reprieve when an appeals court overturned the verdict and ordered a re-trial, which both sides agreed should be in London.
“As with the previous claim, this case is entirely without merit,” a Citigroup spokesman said in an e-mailed statement. “Citi did not make any dishonest statements to Guy Hands or Terra Firma throughout the auction process for EMI and is confident the UK trial will confirm this.”
According to documents filed by the private-equity firm in April, e-mails by Citigroup employees show them talking disparagingly about EMI.
Pup and Pig
“I am amazed you got them to pay up for that old pup,” one said in May 2007. “At long last you sold the pig,” another said. Terra Firma argues the exchanges suggest the bank knew EMI was in worse condition than Hands believed.
Citigroup argued that Hands himself had spoken about EMI being in a “really bad” state before the deal, and that the e-mails reflected the personal opinions of employees who weren’t involved, according to its defense filings. It denied Hands was misled by Wormsley, Klein or Leat, and said he had access to a large team of professionals who could advise him on whether he should buy EMI.
EMI, a century-old record label, was seized by Citigroup in 2011 after struggling to meet the terms of loans used by Terra Firma to finance its takeover. The bank sold its recording division to Vivendi SA’s Universal Music Group the following year.