One of the most ambitious – and ill fated – private equity deals to take place before the 2007 credit crunch has been recounted in a London courtroom after financier Guy Hands began his £1.5bn claim for fraud from Citigroup over the takeover of EMI.
Hands embarked on his second attempt to make the claim against Citi, adviser to the now defunct music group, following a US jury’s rejection of the claim in 2010.
The skeleton argument provided to the court on Tuesday said: “In a nutshell, the claim arises out of a number of fraudulent misrepresentations which were made orally by three very senior executives within Citi to Mr Hands in 2007. Those misrepresentations induced Terra Firma to bid for and acquire the music business, the EMI group.”
The three executives referred to are: David Wormsley, then head of UK banking at Citi, who was known as “the worm” and described as a friend by Hands; Michael Klein, who was head of global banking; and Chad Leat, co-head of global credit markets.
Reviving memories of 2007, when Hands’ Terra Firma private equity firm bought EMI, the Rolls Building courtroom in London was told that evidence would be taken from former and current Citi bankers to support the claim that US bank staff provided “fraudulent misrepresentations” to Terra Firma.
Citi disputes the claim, and will outline its case later on Tuesday. “As with the previous claim, this case is entirely without merit. Citi did not make any dishonest statements to Guy Hands or Terra Firma throughout the auction process for EMI and is confident the UK trial will confirm this,” the bank said in a statement before the case opened.
Terra Firma bought EMI for £4.2bn just as the credit crunch took hold but by February 2011 had ceded control to Citi, which also helped it finance the deal.
The judge, Mr Justice Burton, was told of evidence in phone calls, emails and handwritten notes which would support the claim by Hands that Wormsley knew that a rival bidder for EMI – Cerberus – had withdrawn its interest in bidding for EMI over a crucial weekend in May 2007, set as the deadline for offers.
Wormsley, the court was told, disputes these events. “Your Lordship will have to decide who is telling the truth,” Lord Grabiner, representing Hands and Terra Firma, said.
Grabiner read out an email sent by Jan Skarbek of Citi to a colleague Matthew Smith in May 2007 after the deal had been announced in which he said: “Well done! I am amazed you got them to pay up for that pup.”
Smith replied: “Thanks. Can’t imagine why Guy bought it – he must have a machiavellian plan. Three years of pain on this client.”
Another described EMI – once home to the likes of the Rolling Stones and The Beatles, as “a terminally ill cancer patient on chemotherapy”.
The case is expected to last six weeks and will hear evidence from Hands in the coming days.
This article was written by Jill Treanor, for theguardian.com on Tuesday 7th June 2016 14.31 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010