US Outlook: It is sometimes said that to understand is to forgive, but that won’t apply to David Wormsley.
Maybe Citigroup’s star dealmaker can see why Guy Hands launched his spectacularly backfiring lawsuit against the bank over the 2007 takeover of EMI, but no one should expect him to forgive his erstwhile friend and associate.
There are a lot of wounds being licked this weekend following Mr Hands’ disastrous attempt to strengthen his hand in refinancing negotiations over EMI. It has been an intensely personal drama – obviously, since both men called each other liars from the witness stand.
As trial lawyers worked to render comprehensible the complexities of a multi-billion pound deal, it has often seemed as if neither side’s simplified, stripped down version of events reflected reality. In breaks outside court, when Citigroup was presenting its case, Mr Hands would often proffer that “it’s all bullshit”. In fact, that was the conclusion – the very speedy conclusion – of the jury as regards to his own case.
The bottom line is that there was absolutely no evidence that David Wormsley lied. As he returns to London to throw himself back into his work, after a few days rest, he will have to deal with upset among some other private equity firms over how he passed information about their bidding tactics to Mr Hands. But this was only after-the-fact information, and no confidences were breached, so he ought to emerge unscathed.
No doubt Mr Wormsley can see why the court case happened, Mr Hands was cornered, facing losing billions on the EMI deal, grasping for whatever leverage he thought he might find. But to understand that won’t make it any easier to forgive him for launching the all-consuming dirt-fest that is a modern American lawsuit.
There was someone watching the proceedings with glee. Who should be at the back of Court 14B these past three weeks but a representative from Warner Music? EMI’s long-time rival and sometime suitor still harbours ambitions of taking over the British music icon. I am not sure that that day has got very much closer.
When everyone goes back to work on Monday, the future of EMI will be just about as unclear as it has been for the past couple of years. Its roster of stars, including Coldplay and Kylie and Lily Allen, are not earning enough to keep up with the massive debt load piled on to the company when Mr Hands’ private equity house, Terra Firma, took it over in 2007. So that status quo is not sustainable.
So far, Mr Hands has been able to scrape together enough money for cash injections to keep the company from falling into its lender’s hands. While the court case was ongoing, it was all part of the game to keeping EMI ticking along with new money. Put it on the same tab as the lawyers’ fees.
With the failure of this last-gasp attempt to win compensation from Citigroup for supposed wrongs during the bidding process, that must surely now stop. Mr Hands might already have thrown too much good money after bad, and behaved with such ill-grace, that he will no longer be able to attract backing from private equity investors in the future. For two years some have considered Terra Firma’s stake in EMI to be worthless. Salvaging his reputation involves re-engaging quickly and constructively with the refinancing negotiations with Citigroup, which have been on hiatus for the duration of the trial.
What happens next is entirely in the gift of Citigroup. It may continue to offer Terra Firma, as it did before the trial, a chunk of equity in a refinanced EMI, in return for expediting a resolution. Both sides appear keen to get back to the negotiating table.
As for Citigroup’s eventual exit, there is really no hurry. Warner’s was the only realistic offer on the table last time out, and the cost-savings to be had from putting the two together make it the buyer best able to pay a decent price. But Citigroup will be no more desirous of a competition inquiry than EMI’s shareholders were, if there is an alternative. The shifting landscape of the music industry means that the bank may be able to examine more creative mergers for EMI’s recorded music catalogue. Meanwhile, there ought to be no shortage of bidders for the lucrative and stable song publishing division.
After just four hours deliberation, the jury delivered a thumping defeat to Mr Hands on Thursday. But if that result was clear, the next stages in this drama are not.