Round One To Terra Firma

EMI and Citigroup appear like two heavyweights hell-bent on spending the rest of the year slugging it out, but the UK music company looks to have won the first round as its legal action against the US banker will be heard in New York.

Terra Firma chief Guy Hands, whose private equity company bought EMI for £4.2 billion in 2007, filed the action in New York Dec. 11.

Citigroup hoped to get it moved to London because that’s where the purchase of EMI took place and where many of the key witnesses still live.

“For reasons that will be elaborated in a forthcoming written opinion, Citi’s motion is denied in its entirety,” US District Judge Jed Rakoff told a New York court March 24. The US court set a provisional trial date of Oct. 18.

“We look forward to defending ourselves in this case, which we believe is entirely without merit,” said a Citigroup statement that admitted the bank was disappointed the case won’t be heard in London.

Hands claims Citi lured him into buying EMI under false pretences, namely by not informing him he was only bidder left in the ring.
The US bank was advising on the sale of EMI but also lent Terra Firma £2.6 billion of the money it needed to wrap the deal. It denies any wrongdoing.

Hands claimed the case should be heard in New York because that’s where Citigroup and the relevant subsidiaries are based.

He also said a London hearing might jeopardise his non-resident tax status in the UK, although a few business commentators have pointed out that – should Hands win – the settlements in such cases suggest he’d get a lot bigger payday in a US court.

Meanwhile EMI is reportedly trying to raise about £400 million ($600 million) for a five-year distribution contract on its North American catalogue.

The only remaining UK major music company needs to find £120 million ($180 million) by the middle of June if it’s to avoid breaking the bank covenants that were made to Citigroup when Terra Firma became the new owners.