Citi deaf to EMI tune

By James Thompson

The American investment bank Citigroup has vowed to "vigorously defend" itself against the £1.5 billion ($3.4 billion) lawsuit filed by the private equity owner of EMI, following its troubled £4 billion acquisition of the music group.

Terra Firm, the investment vehicle owned by the multimillionaire British financier Guy Hands, has accused Citi of lying about another bidder being involved in the auction of EMI in 2007, which led the private equity firm to pay a "fraudulently inflated price" for the entertainment company.

In one of the most high-profile legal spats of recent years, Terra Firma claims Citi also wanted to drive EMI into, or to the brink of, insolvency so that it could engineer a merger with its rival Warner Music.

Citi vehemently denied the allegations. A spokesman said: "The suit is without merit and neither Citi nor any of its bankers have done anything wrong here. We will defend against this lawsuit vigorously."

Citi loaned Terra Firma £2.6 billion to finance the EMI purchase in May 2007, which it completed that August. EMI, home to recording stars including Robbie Williams and Katy Perry, has been hit by the wider downturn in CD sales but has also been beset by internal problems. It is reported that widespread cost-cutting at the company has left it with a lack of resources to handle its artists.

Three weeks ago, Terra Firma and its investors are thought to have offered to put an additional £1 billion of equity into EMI, but it was conditional on Citi writing down the value of the loan by about £1.5 billion. Citi is believed to have rejected the proposal.

In the legal claim in which Terra Firma is seeking compensation in lost equity, it claims Citi has earned £92.5 million through multiple capacities on the deal.

It said: "Despite garnering these proceeds, Citi, during the entire period from May 2007 continuing to the present, has recklessly disregarded Terra Firma's rights and interests in connection with the EMI transaction and has in the process harmed Terra Firma."

Terra Firma refers specifically to the role played by David Wormsley, the then head of UK investment banking at Citi, in the EMI deal. It accuses him of "misrepresenting" that there was another bidder, Cerberus Capital Management, involved.

Wormsley is accused of contacting Hands shortly before, telling him he would miss out on the deal unless he made a bid of 265p a share by 9am on May 21, 2007. According to the legal papers, however, the Citi executive knew Cerberus had told EMI it was pulling out.

In the filing, Terra Firma says EMI tripled its earnings before interest, tax, depreciation and amortisation from 2008-9 and also improved its cashflow.


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