A bad buy - with a little help from his friends?

Guy Hands claims his advisers made him pay too much for EMI, the Beatles' label – and is taking them to court

In November 2008, Guy Hands, one of Britain's biggest private equity plutocrats, invited a number of senior executives from the American finance giant Citigroup for a pheasant shoot at Villa Saletta, his 1,760-acre estate in Tuscany once owned by the bankers to the Medici family.

It is likely that among the visiting Citigroup managers was David "the Worm" Wormsley, the head of the bank's UK investment arm and a firm friend of Mr Hands after the pair had thrashed out no fewer than 20 swashbuckling deals worth more than £35bn in the previous decade, including their most high-profile purchase – the £4.2bn takeover in 2007 of the British record company EMI.

According to City legend, the two men had formed a partnership that was as close as it was lucrative, with Mr Wormsley a regular visitor to his client's manor house in Kent and the pair attending the opera in London. Born a year apart, boasting Oxbridge educations and sharing a taste for thrusting deal-making, the pair clearly had much in common.

All of which makes their forthcoming meeting in less than three weeks behind opposing ranks of expensive lawyers before a six-strong jury in New York's Southern District Court one of the most potentially explosive legal spats of recent years with Terra Firma, Mr Hands' private equity fund, claiming up to £3bn from its bankers.

A source familiar with the case said yesterday: "There is little doubt that this will go all the way to the jury. Neither side is in a mood to settle."

A flavour of the acrimony that exists between the one-time business partners is given by the legal document filed by Terra Firma which accuses Mr Wormsley of making representations that were "knowingly false and maliciously designed".

At the heart of the rancour lies what has turned out to be Terra Firma's disastrous acquisition of EMI and a core claim that Mr Wormsley, 50, enticed Mr Hands, 51, into buying the one-time jewel in the crown of Britain's music industry at an inflated price by falsely claiming another private equity bidder, Cerberus Capital Management, was still in the bidding process.

Judge Jed Rakoff, sitting in Manhattan, last week threw out two charges against Citigroup but ruled that claims of fraudulent misrepresentation and fraudulent concealment against the bank should go to trial on 18 October. The stakes are high: defeat for Terra Firma could lead to it losing control of EMI to Citigroup and a loss of confidence in it.

The Terra Firma case is understood to hinge on phone calls made in the final hours of the sale while Mr Hands was meeting business partners at the airport on Guernsey, where the private equity magnate has lived as a tax exile since last year. The Terra Firma founder claims that Mr Wormsley told him Cerberus was planning an offer of 262p per share for EMI and that he should offer 265p to finalise the deal.

The sale duly took place, earning Citigroup £6m in fees for the advice it provided to EMI and £80m for part-financing Terra Firma's bid. In an internal email, one Citigroup executive said: "We got paid on both sides."

Citigroup emphatically denies the Terra Firma allegations, stating in particular that one of three phone calls supposed to have taken place between Mr Hands and Mr Wormsley did not happen and the two others were about other matters. In his deposition, Mr Wormsley states that he "had no knowledge of the status of Cerberus's bid".

Such is the weight being placed by both sides on the phone calls that Citigroup has obtained the flight logs of Mr Hands' private jet and will use Mr Wormsley's mobile phone records to argue that the banker left voicemail messages that did not relate to any Cerberus bid. Mr Hands, meanwhile, will cite witnesses from the Guernsey meeting who will say he left the room to take a phone call and came back saying he had been told by Citigroup that Cerberus still wanted to buy EMI.

If the deal to buy the record company that brought the world The Beatles and Pink Floyd had proceeded as Mr Hands hoped, it is likely that the matter would have been a mere footnote in the annals of Terra Firma's glittering record.

But, by Mr Hands' own admission, the purchase of EMI has not been a glorious episode. The former star bond trader has written off more than half of his investment and seen the record company stagger from crisis to crisis, reputedly earning it the sobriquet "Every Mistake Imaginable".

Mr Hands was criticised for his robust managerial style, forcing through redundancies and highlighting excessive costs such as the £200,000 spent annually on "fruit and flowers" and £20,000 a month on candles. Although the label, whose roster of artists includes Katy Perry and Lily Allen, has recently seen its fortunes improve, it last month reported an annual loss of £624m.

Lawyers for Citigroup are expected to put it to Mr Hands that the proceedings in New York (chosen because the private equity baron cannot spend long periods on the British mainland because of his tax-exile status) is a manoeuvre to compel the bank to restructure EMI's debt and allow Terra Firma to retain control.

In 1997, Mr Hands and Mr Wormsley met up after a bidding war in which they were on opposing sides. They decided they could still do business together and spent a decade blazing a trail across the world of corporate finance. It seems unlikely a replay of that meeting is to take place soon.

EMI: A history

1931 Merger between UK Columbia Graphophone Company and the Gramophone Company creates Electric and Musical Industries Ltd. Alan Blumlein, an EMI electronics engineer, develops a system for recording and playing sound in stereo. In November the company opens the Abbey Road Studios. Artists signed to EMI during the 1930s and 1940s include Sir Edward Elgar and Arturo Toscanini. Company appoints its first round of A&R managers during this time, including George Martin, who would go on to be The Beatles' producer.1955 EMI acquires Capitol Records in LA, whose artists include Frank Sinatra (below), Dean Martin and Peggy Lee.



1956 EMI, which holds rights for all RCA artists outside of North and South America, releases Elvis Presley's first single in Europe, "Heartbreak Hotel", on its HMV Pop label.



1958 Signs Cliff Richard and releases his first single, "Move It".1962 Signs The Beatles (below), releases their first single, "Love Me Do".



1964 A combination of eight EMI artists holds the No 1 position in the UK charts for 41 of 52 weeks.



1972 Signs Queen.



1973 Releases Pink Floyd's Dark Side of the Moon.



1977 Signs the Sex Pistols.



1980 Signs Duran Duran.1990 Buys 50 per cent of Chrysalis Records, acquiring the remaining stake 12 months later. Over the next decade the label would also sign Blur (right), Radiohead, Robbie Williams (right) and Coldplay.



2002 EMI gives Williams a record £80m, four-album contract.



2005 Coldplay's X&Y is the year's best-selling album, shifting 9 million copies worldwide.

2007 Sir Paul McCartney leaves the label. Later in the year Guy Hands's private equity firm, Terra Firma, acquires the company for £4.2bn. Radiohead announce that they, too, are to leave EMI. Hands has plans to reduce workforce by 1,500 to 2,000, and cut costs by £200m a year.



2008 Tony Wadsworth, UK chief executive, leaves company after 25 years. Coldplay's Viva La Vida is year's best-selling album, selling 7 million copies worldwide. Joss Stone announces that she wants to leave the label, citing the breakdown in her relationship with the company after Terra Firma's takeover.



2009 The Beatles' remastered back catalogue sells 10 million copies in four months.



2010 In February the company announces pre-tax losses of £1.75bn for the year to March 2009. Hands appoints former ITV chief executive Charles Allen to run the music arm of the company. KPMG issues a 'going concern' warning on holding company's accounts. 1, the Beatles' compilation, is named the best-selling album of the decade in the US, but in August the company announces pre-tax losses of £624m for the year to the end of March 2010. Initial sales figures for the much-hyped new album from Katy Perry released earlier this month prove disappointing.

Have you tried new the Independent Digital Edition apps?
Arts and Entertainment

ebooksNow available in paperback
Arts and Entertainment

ebooks
Arts and Entertainment
theatre
Arts and Entertainment
Place Blanche, Paris, 1961, shot by Christer Strömholm
photographyHow the famous camera transformed photography for ever
Arts and Entertainment
The ‘Westmacott Athlete’
art
Arts and Entertainment
‘The Royals’ – a ‘twisted, soapy take on England’s first family’
tv Some of the characters appear to have clear real-life counterparts
News
Brooks is among a dozen show-business professionals ever to have achieved Egot status
people
Arts and Entertainment
A cut above: Sean Penn is outclassed by Mark Rylance in The Gunman
film review
Arts and Entertainment
arts + ents
Arts and Entertainment
James Franco and Zachary Quinto in I Am Michael

Film review Michael Glatze biopic isn't about a self-hating gay man gone straight

Arts and Entertainment
A scene from the movie 'Get Hard'
tvWill Ferrell’s new film Get Hard receives its first reviews
Arts and Entertainment
Left to right: David Cameron (Mark Dexter), Nick Clegg (Bertie Carvel) and Gordon Brown (Ian Grieve)
tvReview: Ian Grieve gets another chance to play Gordon Brown... this is the kinder version
Arts and Entertainment
Benedict Cumberbatch and Martin Freeman in the first look picture from next year's Sherlock special

TV
Arts and Entertainment
Because it wouldn’t be Glastonbury without people kicking off about the headline acts, a petition has already been launched to stop Kanye West performing on the Saturday night

music
Arts and Entertainment
Molly Risker, Helen Monks, Caden-Ellis Wall, Rebekah Staton, Erin Freeman, Philip Jackson and Alexa Davies in ‘Raised by Wolves’

TV review
Arts and Entertainment

TV
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special

TV
Arts and Entertainment
Game of Thrones will run for ten years if HBO gets its way but showrunners have mentioned ending it after seven

Game of Thrones
Arts and Entertainment
Mans Zelmerlow will perform 'Heroes' for Sweden at the Eurovision Song Contest 2015

music
Arts and Entertainment
Elizabeth (Heida Reed) and Ross Poldark (Aiden Turner) in the BBC's remake of their 1975 original Poldark

Poldark review
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

ES Rentals

    Independent Dating
    and  

    By clicking 'Search' you
    are agreeing to our
    Terms of Use.

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor