Oh dear. Guy Hands, the self-respecting veteran of British private equity, is clearly closer to the edge than we realised.
If you start accusing a leading bank of getting one of its analysts to write knocking copy on one of your businesses just so as to undermine you, it’s usually a sign that you have lost perspective. Chances are you are a very desperate man indeed.
As the Sunday Times noted in its coverage of Terra Firma’s decision to launch a £2bn lawsuit against Citigroup, Mr Hands’ private equity firm is alleging that one of Citi’s top corporate financiers, David Wormsley, rigged the auction when Hands bid a comic £4bn for music group EMI at the peak of the M&A frenzy in 2007.
Hands says Citi is trying to push EMI into bankruptcy so it can orchestrate an oft-mooted merger with Warner Music.
Now, it’s important to remember here that Citi, which was advising EMI, actually lent Terra Firm much of the money to buy EMI in the first place – £2.6bn, to be precise(ish). Staple finance was all the rage at the time.
According to the lawsuit, Terra Firma recently failed to persuade Citi to write off £1bn from the load in exchange for Hands and Co pumping an extra £1bn of equity into the music business.
Apparently, the stiff interest payments it is having to make to Citi are stopping Terra Firma from making the investment in EMI that would make the business great again.
This will make serious waves in the City. Wormsley, at Citi, is known as rather an upright chap.
Rather than being the victim of some Machiavellian financial dealings, we’d suggest that Terra Firm’s problems with EMI have rather more to do with the fact that this was an ego-driven deal by a man who thought he could apply smarty-pants management techniques to a fat old business where much of the profit was possibly going up the noses of one or two senior executives.
Hands had no idea what he was getting in to and he clearly has no idea how to get out.
Rather than calling his lawyers now he should probably have summoned a medic.
Related links:
Hands launches battle with Citi – FT
Terra Firma Capital Sues Citigroup Over EMI Deal – WSJ