Hands Launches New EMI Battle

Former EMI owner Terra Firma isn’t through with its legal battles with Citigroup and now wants to see the full evidence as to why the U.S. banker felt justified in taking control of the company in February.

It’s asking the High Court in London to order the release of the valuation documents that were used when Citigroup took over, claiming that it’s been asking the administrators at PricewaterhouseCoopers (PwC) to hand over the paperwork since the bank stepped in.

Guy Hands’ private equity firm’s new legal challenge comes as Citi draws closer to hiving off all or at least parts of EMI to a list of potential suitors that reportedly includes all the major music companies and some prominent venture capitalists.

The latest issue hinges on Citi’s justification for seizing control of the company in what turned out to be the UK’s biggest pre-pack administration.

At the time Peter Spratt from PwC, which was the administrator for EMI holding company Maltby Investments Ltd., said it was because Maltby defaulted on the £2.2 billion it still owed on the loans it needed to buy EMI in 2007.

Terra Firma reportedly wants a sounder legal reason for the takeover on the grounds that it had always made sure it was up to date on its interest payments and stayed within its loan covenants.

The court granted Terra Firma a hearing to examine whether the foreclosure was based on a solvency test, rather than covenant breaches or failing to make interest payments on its debt.

EMI had been expected to break the covenants at the end of the quarter in which Citi took control.

Lawyers representing Terra Firma are believed to have applied for the information at a procedural hearing in London Sept. 6, although it’s unlikely the matter will reach court before the end of the year.

Last year Hands took Citi to court in the U.S., claiming the bank misled Terra Firma into overpaying for EMI in the first place.
The court found in Citi’s favour.