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Citigroup Tricked Us Into Buying Emi, Claims Terra Firma

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http://www.guardian.co.uk/business/2010/sep/07/citigroup-emi-deal-terra-firma

Terra Firma today filed papers with a New York court alleging fraud by Citigroup on the grounds that it was tricked into buying debt-laden music company EMI three years ago.

The private equity firm also alleged that a senior Citigroup executive, Chad Leat, told the press last year that founder and chairman Guy Hands "had stepped into one of the highest profile piles of doo doo out there."

Terra Firma's legal submission highlights how Citigroup benefited financially from the deal, and allegedly misled Terra Firma by pretending that another buyer was in the frame, forcing up the price.

Citigroup argues there is no case to answer. A judge is expected to decide in the next week whether a trial should go ahead. It is understood that an attempt to reach an out-of-court settlement has broken down after weeks of haggling.

Hands is seeking billions in compensation from Citigroup as EMI struggles under a debt burden of £3bn, although the label – whose artists include Robbie Williams and Blur – stemmed losses last year.

The purchase, completed just weeks before the onset of the credit crunch, has been one of the most controversial and financially challenging for Hands, who is viewed as one of the leading lights in the world of private equity.

Terra Firma claims the case hinges on what was said in a series of telephone calls in May 2007 between David Wormsley, the head of Citigroup's UK investment banking business, and Hands.

Terra Firma says: "Critically, Citi has been unable to rebut the central allegation in this case: that Wormsley made false statements to Hands during the final days of the 2007 auction of EMI, and that Terra Firma relied on those statements when deciding to buy EMI."

However, Citigroup says that Wormsley did not know at the time that a rival private equity firm, Cerberus, had pulled out of the sale talks. The bank said tonight: "The evidence in this case is overwhelming that Citi has done nothing wrong and we firmly believe that Citi will prevail in this case."

But according to Terra Firma's submission: "Citi cites no evidence to support the notion that Wormsley ever believed that Cerberus would place a bid of 262p per share on 21 May.

"Where a misrepresentation plays any part in inducing a plaintiff to act, the law considers it to be a cause of its loss, even if other factors weighed into the decision."

Elsewhere, Terra Firma relates how Citigroup advised Hands's company on a number of earlier deals. "By 2007, Citi's relationship with Terra Firma had become so lucrative that it occasionally provided services without charging a fee … in light of the $130m (£85m) in fees Terra Firma paid Citi over the two-and-a-half years preceding March 2007."

The whole PE model had become totally flawed many PE firms where simply playing pass the ever expanding debt around. By a company hold for a couple of years and then sell it on to another PE firm for an even bigger amount than paid for and pocket the money. No real value added and the only thing that had increased was the price and debt attached to the business.

Truly turning around badly run firms was no longer the project it was all about holding, service the loan for a bit and then sell whilst "restructuring" to generate a profit.

Hands screwed up with EMI, however if Citi have been telling a few porkies it's no surprise that this is going to end up in court. Hands it appears may have found a get out of jail free card for overpaying for EMI.

Timing in business is everything get it wrong and you lose a lot of money. Anyone know which if any pension firms use Terra Firma to invest with?

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Poor Terra Firma. Full of dumb investors like Hands who didn't know how the city works....Hope the rest of you didn't think he ever knew what he was doing....

Indeed if TF win the case on this basis- a lot of people can surely sue them for being unfit to operate.

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The whole PE model had become totally flawed many PE firms where simply playing pass the ever expanding debt around. By a company hold for a couple of years and then sell it on to another PE firm for an even bigger amount than paid for and pocket the money. No real value added and the only thing that had increased was the price and debt attached to the business.

Truly turning around badly run firms was no longer the project it was all about holding, service the loan for a bit and then sell whilst "restructuring" to generate a profit.

Bear in mind the knock-on effects - given the ongoing threat to *any* public company of PE takeover followed by debt-destruction, it becomes impossible for almost any large company to engage in long term R&D; short term profitability and hence keeping the share price high is the only goal.

There really is a desperate need to regulate company takeovers. Bonuses and fees should only be paid after a period of years where growth and savings targets are actually achieved. Dividends paid out of borrowing should be outlawed, or at least subject to punitive taxation.

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1. :D:D:D:D:P

2. Big boys don't cry ..He's a professional .. he looked at the buisness and decided how much it was worth .. If he didn't think it was worth what was being demanded he should not have paid ..

3. Citi should not have lent him the money unless they were sure he could pay it back ..

So the best thing is to LET IT GO BUST .. then Citi get back as much of their money as possible and LEARN a VALUABLE lesson ..In future they will think twice about lending money for corporate lost causes and distorting the market for everyone else ..

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Poor Terra Firma. Full of dumb investors like Hands who didn't know how the city works....Hope the rest of you didn't think he ever knew what he was doing....

Indeed if TF win the case on this basis- a lot of people can surely sue them for being unfit to operate.

I dunno. If citigroup lied about having another bidder ...

Maybe a judge should find them guilty and award damages. But bearing in mind that all parties acted of their own free will, in an open market, not at any kind of disadvantage, not even an inability to do their own research ...

... maybe award damages of £1 or thereabouts.

Could this set a precedent for estate agents who tell porkies about lots of interest in a property?

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There really is a desperate need to regulate company takeovers. Bonuses and fees should only be paid after a period of years where growth and savings targets are actually achieved. Dividends paid out of borrowing should be outlawed, or at least subject to punitive taxation.

Dream on. Not going to happen though, is it? With a croupier running Barclays and an ex bankster taking over at Trade. Oh and apparently an "ex squid" is being primed to take over at HSBC. The banksters massive lobbying of our "elected representatives" has paid off. The coalition will quietly turn a blind eye to bonuses and any City regulation! Kerching!

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I dunno. If citigroup lied about having another bidder ...

Maybe a judge should find them guilty and award damages. But bearing in mind that all parties acted of their own free will, in an open market, not at any kind of disadvantage, not even an inability to do their own research ...

... maybe award damages of £1 or thereabouts.

Could this set a precedent for estate agents who tell porkies about lots of interest in a property?

I just don't see how lying about another bidder would stand up. What is the criteria for "another bidder"? Is this not classed as "puff"?

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...ex bankster taking over at Trade. ....

The banksters massive lobbying of our "elected representatives" has paid off. The coalition will quietly turn a blind eye to bonuses and any City regulation! Kerching!

.....ex Banker who presided over one of the worlds prime movers in the Finance for Foreign Trade ....seems logical to me that he should be appointed ...Green also spoke out against the massive bonus culture....what else do you have.....?.... :rolleyes:

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http://www.independent.co.uk/news/business/news/terra-firma-and-citi-attempt-deal-ahead-of-emi-showdown-2109548.html

Terra Firma and Citigroup were locked in talks last night in a last-ditch bid to avert the start of a trial in New York, which will decide if the US bank misled Guy Hands' private equity firm over the buyout of EMI Music.

Sources close to both sides expressed doubts whether the negotiations would lead to a deal before the start of today's hearing, although both are eager to avoid a costly and drawn out courtroom tussle.

The row is over the buyout of the music label three years ago during the halcyon days of the private equity industry. Terra Firma paid £4.2bn at the top of the market, and while EMI's trading performance has improved, the group that produces records for the likes of Lily Allen and Robbie Williams has struggled to keep up with debt repayments.

Terra Firma claims that Citigroup, and David Wormsley, its leading banker on the deal, overestimated the potential of EMI, leading to the private equity firm paying over the odds for the former FTSE 100 company. Citigroup denies any wrongdoing. Neither side commented yesterday.

Mr Hands is thought to be hoping to persuade Citigroup to agree to significantly reduce the debt. According to reports over the weekend, he is demanding that the bank write off £2bn in return for calling off the court case and the bank being absolved of any blame. Mr Hands is also likely to insist that the terms of the debt are reset.

"What is clear, and this is true whether or not the case goes to court, is that Citi will be forced to reduce the debt," said a source close to the situation. "At the moment it is far too high."

Looks like it's all about getting the debt reduce, question is that more in Citi's interest than risking losing in court?

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I love a good schad headline in the morning...

I wonder if any of the papers will come up with anything close to....

"PE demi-god in due diligence nightmare; portly lad forced to suck it up with the masses..."

OR

"Spoilt bint's hotels implicated in "Twigs in Vases in over-leveraged country piles; it's a sh!t business model" shocker... "

It could be a fun few months if they did :)

B

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So what if they lied about having another bidder? Is that not what business deals are about? getting the best price?

FFS, if fibbing about other interested parties is illegal then every estate agent in the country needs to be hauled in :lol:

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Need to rebrand. Can I suggest 'Terra Infirma'.

All these fat tw@ts seem to do all day long nowadays is sue each other.

Not really 'business' is it chaps.

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So what if they lied about having another bidder? Is that not what business deals are about? getting the best price?

I think the problem is citi were supposed to be working for them...

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Should have looked at history. Buying EMI pretty much did for Thorn Electric back in the day.

My favourite story was that of the Terra infirma lot going over EMI accounts once purchased and kicking up a stink about the "fruit and flowers" bill, without knowing that this is euphenism for drugs and other dodgy things supplied to artists.

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Whatever the logic of this, and personally I hope Hands is laughed out of court, it always seemed insane.

There are certain news stories that anyone with a brain shakes their head at. EG Broon taking the pm job. We all knew it would end in tears.

Terra Firma over paying for EMI at a time of so much uncertainty in the media and retail markets seemed absolutely bonkers.

Truth? no doubt Hands and co really believed they were masters of the universe, and could bend time and space to make their fiendish plan work. Whatever it was. All I can say is hahahahahahahahahahahahahahahahaha. If there was any justice he'd end up scrabbling for coins like the rest of us.

EDIT* he's also the KING of cry baby capitalists. I'd forgotten this 'In April 2009, in protest at the UK tax system, Hands moved to Guernsey. Since then, he has not been to the UK and his family travel to Guernsey to see him'

In the word's of Alan Partridge, Wad a Dwad.

Edited by iamdamosuzuki

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And the ending:

http://www.guardian.co.uk/business/2010/nov/04/guy-hands-citigroup-claim-fails

A New York jury today rejected a fraud case against investment bank Citigroup brought by British financier Guy Hands over his £4.2bn purchase of the EMI music group in 2007.

The decision in the US district court in Manhattan could now force Hands's private equity firm, Terra Firma, to relinquish control of EMI to Citigroup, the main creditor bank that provided £2.6bn in loans for the acquisition.

The jurors deliberated for more than four hours over two days before reaching their verdict, concluding a near three-week trial.

They had heard Hands's word pitted against the word of his onetime Citigroup banker friend David Wormsley, 50.

Hands, 51, accused Wormsley of lying about a rival bid for EMI in May 2007 to encourage Hands to bid higher. The other bid turned out to be non-existent and Wormsley denied saying there had been one.

EMI has struggled under the weight of its debt, and the deal became a symbol of the excesses of the credit boom in the high-stakes world of leveraged buyouts.

Terra Firma sued in December 2009, seeking damages of up to $8bn, (£5bn) an amount that was reduced at trial to a maximum of £1.5bn .

The case has cost the antagonists tens of millions of pounds and embarrassed both sides.

Citi has written off $2bn of its debt and Hands has said the group is now worth only £1.8bn.

So over a 50% loss if the £1.8bn value is accurate, I wonder how much Hands has made out of the buyout with management fees.

Was it just banks that funded this or have some pension funds been burned as well?

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http://www.bbc.co.uk/news/business-12339299

US banking giant Citigroup has taken over the ownership of EMI, the music company where it was the major creditor.

The bank had loaned money to Guy Hands' private equity firm Terra Firma to help it to buy the business in 2007.

But the £4.2bn takeover was a failure, with Terra Firma believing it massively overpaid for the company.

Now it has been forced to hand EMI over to Citi after not being able to keep up interest payments on the loans.

'Positive development'

EMI, which is home to artists including Lily Allen, The Beatles, Coldplay and Tinie Tempah said it would continue under the same management and that it was now completely separate from its previous owner.

Citigroup, which provided Terra Firma with loans to help finance takeover, said it would eventually sell EMI.

So Citi now owns a record label. I wonder if Citi will end up funding the sale of EMI to someone else?

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Buyer beware. Isn't that the rule for proles buying second hand goods?

This is no different to PE.

Quite right! Sounds like the equivalent of buying that bargain bag of "electrical goodies" at a street market! :huh:

No inventory. No buy! :blink:

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A clear pathway to misery, failure and destruction of value or any normal economics.

All involved are gagging for securitization to come back - if it does it will quicken the total and final destruction of the economy.

http://www.guardian.co.uk/business/2011/feb/01/guy-hands-emi-securitisation

Guy Hands: 'Securitisation is the crack cocaine of financial services'

His career began in the early 1980s at Goldman Sachs where he learned about a new form of financial alchemy sweeping corporate America known as securitisation, which involves long-term bonds being issued, backed by cashflows from company assets.

Moving to the London offices of Japanese bank Nomura in 1994, Hands pioneered the use of securitised debt to finance acquisitions on this side of the Atlantic.

His most lucrative deals included Annington Homes, former army housing stock bought from the Ministry of Defence; Angel Trains some of the privatised leasing stock once owned by British Rail; and a series of pub deals that eight years ago transformed Nomura into Britain's biggest pub landlord.

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A clear pathway to misery, failure and destruction of value or any normal economics.

His career began in the early 1980s at Goldman Sachs where he learned about a new form of financial alchemy sweeping corporate America known as securitisation,

That was the "bin bag" I was thinking of! :o;)

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