Guy Hands's private equity group Terra Firma bought out the music group EMI for £4bn at the peak of the private-equity boom in 2007, with a £2.5bn loan from Citigroup. Now it has filed a lawsuit against the bank. The group, said Terra Firma, had "paid a fraudulently inflated price for EMI" because Citi allegedly claimed that a rival bidder was still in the auction when it had in fact pulled out.
What the commentators said
Across the private-equity industry, banks and buy-out firms are "fighting over the scraps of value left" in companies bought with too much debt in 2006/2007, said Martin Arnold and Andrew Edgecliffe-Johnson in the FT. The purchase of EMI by Europe's "best-known private equity chief" has proved "disastrous". Hands has had to write down his £1.5bn equity stake in the long-suffering group known as 'Every Mistake Imaginable' by 90%. Only regular cash injections from Terra Firma have kept EMI from breaching its loan covenants.
Talks to restructure the group's debt have gone nowhere. Citigroup wanted a debt-for-equity swap giving it control. Meanwhile, Terra Firma wants Citigroup to write down £1bn of its loan in return for £1bn of fresh equity for EMI. Legal action is seen by some as "a last-ditch attempt to persuade Citigroup back to the negotiating table". It also has "the tang of sour grapes", said Dominic Rushe in The Times. It's been two-and-a-half years since the EMI deal, "and Hands finds problems now?"
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Raising the stakes "so publicly" is a "risky" move by Hands, said George Hay on Breakingviews. Any resolution "will not be amicable". Other banks will "think twice" before working with him.
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