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Terra Firma v Citigroup: Opening remarks

By | Published on Tuesday 19 October 2010

Both Gary and The Worm were in court in New York yesterday, though according to reports neither acknowledged the other, perhaps in a bid to help out those of us who are choosing to portray this legal battle as really being about a bitter feud between too former best buddies whose friendship turned sour after a dispute over some records (well, a record company). A bit like a hip hop feud but with fewer guns and less fun stuff.

Anyway, it was day one of the Terra Firma v Citigroup trial yesterday. As much previously reported, Terra Firma and its boss man Gary ‘The Guy’ Hands, and Citigroup and its senior advisor David ‘The Worm’ Wormsley, are squabbling over the former’s 2007 acquisition of EMI. Gary claims The Worm gave him duff advice ahead of his audacious EMI takeover which, he argues, resulted in him paying over the odds for the flagging music company.

A jury of nine took their front row seats as the long running squabble finally reached court yesterday, after to-the-last-minute efforts to reach an out of court settlement failed. They were told that the case about to unfold before them would focus in the main on conversations between three men at three companies over four days – that being Gary and Terra Firma, The Worm and Citigroup, and EMI and a guy called Eric.

Opening for Terra Firma, attorney David Boies updated jurors – who embarrassingly haven’t been reading CMU’s coverage of this squabble, otherwise they wouldn’t need to have been told – on Gary’s allegations. Citigroup misadvised Terra Firma, he said, mainly because of a conflict of interest brought about by the bank working for both the equity group and EMI at the same time, not to mention the fact the bank itself stood to gain greatly from the takeover going through, as the main money lenders behind the deal.

He told jurors that The Worm, and another Citigroup exec, had told Gary that they were working totally in Terra Firma’s interests with regards the EMI deal, with Wormsley allegedly saying, “I am incapable of not trying to get you the best possible outcome”.

Yet, Boies claimed, at the very same time The Worm was telling the aforementioned Eric – EMI plc CEO Eric Nicoli – that he was operating in his company’s interest, advising that, “I have negotiated against Guy on literally dozens of occasions. He is very quirky and I am absolutely certain that I can deliver very serious added value to the negotiations”. Citigroup was, Boies reckons, “playing both sides of the street”.

As Terra Firma’s dealings with EMI plc reached their climax, Boies added, Citigroup advised Hands that he should not “play games with the offer price”, indicating – Terra Firma says – that there were other serious competing bids on the table. The bank also brought forward the deadline for bids, albeit “at the request of another bidder”, further forcing Terra Firma’s hand.

All of which, Boies says, rushed Terra Firma into making an offer for EMI way above the odds, with Citigroup assuming that once Hands had made his initial offer he’d not want to withdraw it, because doing so would damage his reputation as a big deal maker. Nevertheless, Boies claimed, the bank maintained the charade of there having been a serious rival bidder even once Terra Firma had made its offer. The lawyer told the court: “Citigroup knew they lied, so they tried to cover it up to continue the fiction. Moreover, they were joking about how much of a fool they made of one of their most trusted clients”.

Citigroup’s man in court, Theodore Wells, countered that The Worm was an honest banker – because apparently such a thing exists – and that he had never lied to Gary about rival bidder Cerberus’s intentions. The bankers’ legal man was keen to paint a different picture – one in which Gary had made big promises to his investors about the profits that could be made by turning EMI’s fortunes round, and that when he failed to deliver on those promises the equity man started to look for someone else to blame, rather than take the failure on the chin. 

According to The Guardian, Wells told the court: “Guy Hands is a very senior corporate executive who buys and sells companies and tells his investors they will make a lot of money. He told them he had money in the [EMI] deal and they should be happy too. Then it turned out to be a bad deal. People lost a lot of money. So now Hands has a new story: rather than take responsibility he says he was tricked by David Wormsley. There was no fraud, no lies. Guy Hands wanted to buy EMI and he wanted to win. It wasn’t a good investment, so now we are in this courtroom”.

Wells added that it was insane to suggest Hands had based is entire decision to invest in EMI on a last minute piece of advice that may or may not have been given by Wormsley. “You don’t put up $4bn without due diligence”, he mused. “The fact that the deal did not go well is not Citi’s responsibility”.

The case continues.