Future of EMI in doubt as Hands loses legal fight
Bank may take control of record label after bitter £7bn case between former friends
Friday 05 November 2010
Guy Hands, one of Britain's richest private equity barons, was last night facing the prospect of losing more than half his wealth, after a New York court rejected his claim that he had been tricked into buying EMI, the disaster-stricken record company.
His long-odds lawsuit against Citigroup, the banking giant which lent him £2.6bn for the takeover in 2007, ended in failure after little more than four hours of deliberations, leaving the future of EMI – home to The Beatles, Coldplay and Katy Perry – up in the air.
The jury of five men and three women sided with lawyers for Citigroup, who said that Mr Hands was trying to shirk responsibility for a bad business decision and shift billions of pounds of losses from himself and his investors to Citigroup's own shareholders.
During the trial, which saw almost three weeks of sometimes bitter, personal testimony, Mr Hands said he had more than 60 per cent of his personal wealth tied up in EMI. His private equity firm, Terra Firma, now faces the possibility of losing all of its investment. The millionaire investor, who lives as a tax exile in the Channel Island of Guernsey, left court without saying anything yesterday, though Terra Firma said it "reserved its right" to appeal.
The outcome is a bitter blow to Mr Hands, and a stain on his reputation. From the witness stand, he had insisted that the Citigroup banker David Wormsley, once one of his closest business associates and friends, lied to him repeatedly during the bidding for EMI, and that Terra Firma would never have agreed to pay £3.2bn otherwise. It was not a version of events that the jury believed.
The two men, who only two years ago shared nights at the opera and clay-pigeon shooting trips, never acknowledged each other in the courthouse. Each called the other a liar. Mr Hands was accused of simply making up the contents of two last-minute phone calls he said he had with Mr Wormsley, which he claimed convinced him there were other bidders circling EMI.
Meanwhile, testimony from other players in the deal revealed the tricks and tactics used in the negotiations at the very top of British high finance, as companies work to squeeze the highest price from buyers, and buyers scheme to drive down the price.
Mr Hands suffered his first setback last week, when Judge Jed Rakoff narrowed the range of damages that jurors could consider, to $2.2bn from the $8.3bn Terra Firma had sought. Punitive damages were inappropriate in a case that amounted to "a catfight between two rich companies", he ruled. The initial total figure for damages sought was £7bn.
Both sides had hired star attorneys to present their case, and at the end of the trial, Judge Rakoff praised the lawyers for both sides for one of the best trials he had ever overseen "in terms of the level of advocacy".
But it was Citigroup lawyer Ted Wells whose eviscerating closing performance most persuaded the jury. Mr Hands had made a personal fortune estimated in the hundreds of millions of dollars by buying up companies, from cinemas to pubs, and selling them on again at a profit, but "the magic sauce" had failed him in the case of EMI, Mr Wells said. It beggared belief, he said, to claim that Terra Firma invested billions on the basis of a couple of last-minute phone calls from a banker. Rather, Mr Hands had genuinely believed that EMI was worth the price he paid, and that he would make twice or triple his money back.
"Rather than take responsibility for the fact that he made a mistake, he turned around and brought this lawsuit. He said 'it wasn't my fault, David Wormsley tricked me'. That's garbage. He can't shift responsibility for his bad business decision from his company to Citigroup. That's not right and it's not fair."
For Mr Hands, the lawsuit now appears to have been a case of brinkmanship gone spectacularly awry. Most observers had believed that Citigroup would settle the case as part of a wider renegotiation of EMI's debts, and that Mr Hands was simply aiming to exert pressure in the negotiations. Those will now resume with Terra Firma's hand vastly weakened. The record label is unlikely to be able to meet its obligations to Citigroup and the bank may now take it over.
Last night, Terra Firma expressed its disappointment in a statement via a spokesman. "We believe this was an important action to bring and that we had a responsibility to our investors to bring it. We will continue to focus on achieving the right result for them and for EMI."
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