Terra Firma And Citi In Nuclear War

The unnamed investment firm chief who told the Financial Times that Terra Firma and Citigroup have been at “nuclear war” for two years may not have been far off the mark.

Terra Firma chief Guy Hands has filed $1 billion fraud suit against Citi over the 2007 auction for EMI and also claimed the US investment bank wants to force the sale of the UK major music company to Warner Music.

Hands says that during the course of the EMI auction he was given inaccurate advice by a Citigroup contact, who led him to believe there were other bidders when in truth they had all pulled out.

The FT is now reporting it’s spoken to sources close to the auction and they’re challenging Hands’ version of events and the substance of the Terra Firma writ.

Hands says he would have not offered a binding bid of 265 pence per share for EMI if he’d known he was the only one left in the auction. But the paper says that far from being the only remaining bidder, Warner Music reps were still conducting due diligence in EMI’s London offices when the winning Terra Firma bid was made.

Other commentators have said Hands could have pulled out before Terra Firma achieved 90 percent acceptances from EMI shareholders in early August 2007. They question why he has waited so long to pursue a legal issue with Citigroup.
The Terra Firma lawsuit raises questions of which details banks can disclose during auctions.

“Banks do not have a specific duty to inform bidders who is taking part in an auction. Whilst banks must not lie, they are not obliged to correct misapprehensions which bidders may be under.” explained Andrew Wylie, a partner at law firm Nabarro.

Other EMI bidders originally included One Equity Partners, Fortress Investment Group, Cerberus Capital Management and Corvus Capital, which pulled out four days before the deadline.

Terra Firma’s suit claims that Citigroup was aware that Cerberus would not bid but still called Hands on the eve of the deadline and told him the bank would recommend a Cerberus offer if he did not bid by 9 a.m.

Citigroup reportedly made £136 million in fees from the deal. It advised EMI and provided Terra Firma with £2.6 billion of debt.
The bank has said it will “vigorously” defend the action, which was filed Dec. 11. It has three weeks to respond.