Terra Firma versus Citigroup: legal battle over sale of EMI set for trial in New York

A legal battle over the sale of music label EMI can go to trial next month in New York, a judge ruled, in a case that may see some of London's top financiers take the stand.

The case centres on allegations by Terra Firma, the private equity firm founded by Guy Hands, that it was misled by US bank Citigroup over its decision to buy EMI in the late spring of 2007. US District Judge Jed Rakoff ruled late on Tuesday that Terra Firma's allegations of fraudulent misrepresentation and fraudulent concealment can proceed to a jury. However, Terra Firma's claims of negligent misrepresentation and tortious inteference were knocked back by the judge.

On Friday, Citigroup had sought to persuade Judge Rakoff that Terra Firma's allegations should be thrown out. The trial, which is scheduled to start on October 18, is likely to see Mr Hands called as a witness and and may see a number of bankers from Citigroup called too.

Terra Firma alleges that David Wormsley, a Citigroup banker who had worked with Mr Hands on several deals before EMI, misled Mr Hands into believing that Cerberus, a rival private equity firm, was still interested in bidding for EMI. That in turn, Terra Firma alleges, was pivotal in prompting Mr Hands to bid 265p a share for EMI. Citigroup denies all the allegations and repeated its arguments to Judge Rakoff last week.

Jay Cohen, counsel for Citigroup, said on Friday that "there are millions of pieces of paper in this case but there's not a single piece of paper that says we (Terra Firma) got the information from Wormsley and that's why we bid." Citigroup could not be reached for comment late last night. A spokesman for Terra Firma said: "“We are pleased that Judge Rakoff has rejected Citi’s attempt to avoid a trial on both of Terra Firma’s fraud claims."

The trial will prove revealing about a deal that has been one of the most challenging for Mr Hands. Within weeks of buying EMI, whose artists include Coldplay, Katy Perry and David Bowie, the benign financial conditions that had fuelled a boom in private equity deals began to unravel.

Since when, EMI has been grappling with radical changes in the way people listen to music, as well as the need to unearth new artists. While the size of the company's losses have been cut, EMI is still burdened with billions of pounds of debt used to fund the purchase. Terra Firma injected another GBP105m into EMI in June to help the company meet loan agreements.

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