Citigroup sued by Terra Firma over EMI deal

British private equity firm Terra Firma accused Citigroup Inc of fraud and sued the bank for billions in damages in connection with Terra Firma's purchase of music business EMI Group in 2007, court documents filed yesterday in New York showed.

Terra Firma accuses Citigroup of inflating the price it paid for EMI by failing to reveal that the only other bidder, Cerberus Capital Management, had withdrawn hours before an auction for EMI closed, Terra Firma's attorney Jonathan Sherman told Reuters.



Instead, the Citi executive working on the auction told Terra Firma shortly before the bidding deadline that it had to top a purported Cerberus bid to win EMI, Sherman said.



Had Terra Firma known it was the only bidder left, it would not have bought EMI, he said.



"The damages are some amount of equity, which we think reaches into the billions of dollars, reflecting equity that we wouldn't have parted with but for the fraud that Citigroup committed," Sherman, of Boies, Schiller & Flexner, said.



Private equity firms have struggled to keep their porfolio companies healthy amid the financial crisis, and some private equity-owned companies have either filed for bankruptcy or are struggling to meet debt covenants.





Many buyout firms went deep into debt to acquire companies during the buyout boom of 2005-7 and are now paying the price, while banks are unwilling to take further pain on loans they made in better times.



Terra Firma bought EMI at the height of the buyout boom in May 2007 in a £4bn ($6.51 billion) deal, closing the deal with a £2.5bn loan from Citi and £1.5bn in equity.



Citi served as adviser, lender and broker to EMI and sole financier to Terra Firma, which contends it also overpaid for its debt as a result of the fraud, the lawsuit said.



In a statement, Citigroup described the lawsuit as "without merit" and said the bank would "defend ourselves vigorously."



The complaint also alleges that Citigroup undermined Terra Firma's ability to manage EMI by fueling speculation about the music company's financial health in an analyst note in October and by refusing to restructure its loans.



"Citi is trying to generate the conditions to make a covenant breach possible", possibly as part of a plan to take control of the company and sell it to Warner Music Group, Sherman said.



The lawsuit comes a couple of months after Terra Firma Capital Partners Chairman and Chief Investment Officer Guy Hands said EMI's results were improving and that the firm was in "gentlemanly" talks with Citigroup over the debt, which is costing EMI 10 per cent a year, or about 300 million pounds.



Citi is holding the debt package associated with the deal after an attempt to sell some on to secondary investors was thwarted by the credit crunch.



The ailing music group, whose artists include Coldplay and Robbie Williams, accounted for the vast majority of Terra Firma's £1.23bn (€1.37bn) writedowns this year and Terra Firma was forced to inject extra capital into EMI twice in just six months.





Hands, previously the chairman and chief executive officer of Terra Firma, relinquished day-to-day control of the firm in March amid investor ire over the EMI deal to concentrate on investments and building relations with investors.



He conceded in September that Terra Firma had overpaid for EMI, saying in a speech that luck and timing were a good part of investing.



"If the EMI auction started two weeks later, it wouldn't have occurred," Hands said at the time. "We wouldn't have bought it. We'd have 90 percent of our funds still to invest and we'd look like geniuses," he said.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Ridiculous Six has been produced by Adam Sandler, who also stars in it
filmNew controversy after nine Native American actors walked off set
Life and Style
The original ZX Spectrum was simple to plug into your TV and get playing on
techThirty years on, the ZX Spectrum is back, after a fashion
Sport
football
News
news
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk