Hands’ Dream of Terra Firma Mega-Firm Ended With EMI Deal

Updated on
  • Guy Hands says EMI auction process wasn’t ‘very nice’
  • Terra Firma alleges Citigroup hid record label’s struggles

Guy Hands told a London court that his disastrous 2007 takeover of EMI Group Ltd. cost 200 million euros ($230 million) of his own money, his reputation and his aspirations of making his Terra Firma Capital Partners a "mega-firm."

"It’s not so much the disaster, because lots of firms had disasters at that time, it’s the continuation of the EMI story that has ended that aspiration," Hands said while giving evidence during the second day of a trial against Citigroup Inc. "What other firms did was bury them and move on. What has caused our particular problem is the fact that we haven’t moved on, for good reasons."

Hands is trying to prove -- after losing a lawsuit in New York -- that Terra Firma only spent the 4 billion pounds on the struggling record label because bankers at Citigroup misled him. The deal lost money for everyone involved and hurt Hands’ reputation. The private-equity firm is seeking damages of about 2.5 billion pounds.

Hands has always maintained 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.

Hands’ lawyer, Anthony Grabiner, on Tuesday accused two more Citigroup executives, Michael Klein, then head of global banking, and Chad Leat, then co-head of global credit markets, of lying to convince Hands to commit more equity to the EMI deal.

Resurrect Reputation

During questioning Wednesday, Citigroup lawyer Mark Howard asked whether blaming the bank for his failed investment in EMI would allow Hands to recover 200 million euros and "resurrect" his reputation.

"I agree on the money, but not on reputation," the 56-year-old Hands said. "I made that investment trusting certain individuals and I think most investors out there, particularly in hindsight based on what they’ve read in the press over last few years, will find that I should not have trusted those individuals, but I did."

The bank in court filings strenuously rejected Hands’ allegations about the three bankers.

Wormsley, Klein and Leat “did not in any way act dishonestly," Citigroup said in its skeleton argument submitted to the court Tuesday. “Nor was there any sensible reason for these senior, respected individuals to have sought to mislead Terra Firma in relation to the acquisition of EMI."

Shake Down

The case "is what one on the street would call a shake down," Howard said.

Much of Wednesday’s testimony focused on the fairness of the EMI sale at an auction and how much information powerful financiers like Hands can expect from bankers running the process.

Hands said in his witness statement that he had expected the auction for EMI to be conducted "on a level playing field," according to an excerpt read out by Howard.

By that “I meant we would not find ourselves in a situation where the management team were working with another bidder," Hands said in court Wednesday.

It would have been "obvious to you that if Mr. Wormsley had approached you in the way you suggest he did that the other bidders were being deceived," Howard replied. "I put it to you it wasn’t a level playing field, it was tilted in your favor. In fact, it was entirely loaded in your favor."

‘Honest or Not’

"Do you think that’s an honest way to approach business?" Howard asked.

"In my experience, it’s the way auctions are conducted," Hands said.

The bank lawyer continue to press Hands: "Is it honest or not?"

"Sitting here today, it doesn’t sounds very nice," the financier replied.

The case is Terra Firma v. Citigroup, High Court of Justice, Queen’s Bench Division, No. CL-2013-000293.

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