How much is that doggy in the window? In a breathtakingly audacious but not totally unsurprising move, EMI’s owners filed suit against Citigroup on Friday, accusing the US banker of fraud, the Wall Street Journal reports. EMI and Citigroup have been locking horns for months over the $4.2-billion evaluation that London-based Terra Firma paid to acquire the British music firm. Since then, Terra Firma’s colourful and outspoken chief Guy Hands has taken a scythe to a litany of bloated expenses – from flower arrangements and limousines to unrepentant and unrecouped acts – in a bid to restore a balance between EMI’s revenues and expenses. Having innovated in an industry that accepts change like a cat takes to water, Hands has …well, had his hands full.
Over time, Terra Firma has written down the asset value of EMI by 50%, and has exerted pressure on Citigroup to do likewise. The American banking institution has resolutely resisted, which leaves Hands and company with an obligation to pay its lender a full measure while owning an evaporating asset.
The complaint also alleges Citigroup, which holds about $4.2 billion of EMI debt, undermined Terra Firma’s ability to manage EMI as part of a scheme to wrest control of the company and sell it to Warner Music.
Insider publication Hits reports that Citigroup held an auction for EMI, and allegedly didn’t tell Terra Firma they were the only ones left in the bidding, and that one of their execs misrepresented that N.Y.-based Cereberus Capital Management was still interested, leading to Terra Firma making a binding bid, which they claim they never would have done as the only bidder.
Citigroup was acting both as an adviser to EMI, and as lenders, what’s known on Wall Street as a “staple” financing.
“Citi lied to Terra Firma about the auction process,” said Jonathan Sherman, an attorney at Boies Schiller & Flexner LLC, the law firm representing Terra Firma. “It was a busted auction with no other bidders, and when does a private equity house ever bid against itself? Never.”
Terra Firma seeks to recover its roughly $3 billion in paper losses on the deal as well as punitive damages for Citi’s “egregious wrongdoing.”
