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Terra Firma wants a new trial in its EMI dispute with Citigroup

By | Published on Friday 5 October 2012

Terra Firma v Citigroup

Lawyers for private equity group Terra Firma have asked a US appeals court to order a new trial in its client’s legal squabble with US bank Citigroup over the purchase, in 2007, of EMI.

As much previously reported, Terra Firma, led by Guy Hands, bought the British music company in 2007, in a debt-laden deal that went very bad indeed when the credit crunch occurred shortly after the transaction had been completed, leaving EMI with one very high profile multi-billion debt to Citigroup.

Radical downsizing, and the parachuting in of executives from tech, advertising and FMCG backgrounds, didn’t result in the quick turn round of EMI’s fortunes that Hands had hoped for (even if, ultimately, a stronger EMI emerged from the initial quagmire), while the cost of servicing EMI’s debts (and sticking to the harsh covenants on the multi-billion pound loan) caused endless woes for both the major’s management and its private equity owners. Eventually Citigroup repossessed, and ultimately split EMI into two and sold it off to the world’s two biggest music companies in a bid to recover as much of its unpaid loan as possible.

Terra Firma and Citigroup fell out over EMI big time, which didn’t help when the private equity company really needed to restructure the major music firm’s debts with the bank. Citi not only funded Terra Firma’s audacious EMI acquisition, but then advised on it too, and it was that advice over which Hands subsequently sued the bank.

Citi advisors, he said, had misled him and Team Terra Firma because of the bank’s own interests in seeing the EMI deal go ahead, meaning that the equity group overpaid for the music company, and rushed into a deal which it might have walked away from had a few more months passed in the negotiating process (given the major shifts in the credit markets that occurred in that time).

But in a high profile 2010 court case that didn’t portray either Citigroup or Terra Firma in an especially gratifying light, a jury ruled that Citigroup advisors had not deliberately misled Hands in the way the equity man alleged.

We knew about Terra Firma’s intent to appeal that ruling almost immediately, and there was talk of a planned appeal hearing for earlier this year, though that never went ahead. Now Terra Firma lawyer David Boies has told the US Second Circuit Court Of Appeals that he believes the judge in the first tiral gave bad instructions to his jury, mainly about the burden of proof, and therefore the ruling that jury reached is unsafe. “The only way a jury can know what to do is to be [properly] instructed about it”, Boies told the appeal judges, requesting a new trial.

For its part, according to the Wall Street Journal, a legal rep for Citigroup said that the instructions given to the jury by US District Judge Jed S Rakoff were fine, and that the case was decided based on who the jury believed, Hands or the main Citigroup exec involved in the case, David Wormsley. Said Citi’s lawyer: “The jury verdict is pretty powerful inferential evidence the jury believed Mr Wormsley, and not Mr Hands”.

So it remains to be seen if we get a take two scenario of the Terra Firma v Citigroup EMI squabble. I do hope so, the first trial was good fun. Biscuits all round.