MANHATTAN (CN) – Terra Firma, a private equity company, claims Citigroup lied to it to push up the price it paid to buy the music label EMI. Terra Firma claims that after all other bidders had withdrawn from the auction, Citigroup told it there was still another bidder. As a result, Terra Firma says, it bought the ailing record label at an inflated price and Citibank made £92.5 million brokering the deal.
EMI’s stable includes a slew of top-notch acts, including the Beach Boys, Frank Sinatra, Miles Davis, Lenny Kravitz, Alicia Keys, Kanye West and others. But Terra Firma says EMI suffered a 7-year economic decline between 2000 and 2007 and tried twice, unsuccessfully, to merge with Warner Music.
During that time, Citi served as EMI’s book-runner, banker, commercial lender and adviser on potential mergers and acquisitions, according to the complaint in New York County Court.
Terra Firma claims Citi’s increasing involvement led to “inherent conflicts.” In April 2007, Citi established an auction for “a number of private equity firms” that expressed interest in purchasing EMI.
“Over time it became clear that Citi could earn substantial fees that were available only if Terra Firma, as opposed to the other bidders, were to purchase EMI,” the complaint states.
Terra Firma claims all of the other bidders withdrew as the auction date approached, but Citi executive David Wormsley told Terra Firma that Cerberus Capital Management would buy the label if Terra Firma did not outbid it by the next business day.
So Terra Firma bid £4 billion and acquired the label, according to the complaint.
Terra Firma claims Citi continued perpetuating the fraud even after the auction closed. It claims that Citi rejected Terra Firma’s attempts to restructure EMI “as part of a deliberate attempt to undermine EMI.”
Terra Firma claims that an analyst report by Citi’s research arm shows that the bank aimed to take control of the label by “pushing it into, or on the brink of, insolvency.” It claims that the plan failed because of Terra Firma’s financial leadership,.
“Under Terra Firma’s leadership, EMI has more than tripled its EBITDA from 2008 to 2009, and has turned around its cash flow, which has swung from a deficit of £144 million for the fiscal year in which [the firm] acquired EMI to a surplus of £190 million during the following financial year,” the complaint states.
Terra Firma seeks punitive damages from Citigroup, Citibank, Citigroup Global Markets Limited and Citigroup Global Markets, for fraud and negligence.
Terra Firma is represented by David Boies with Boies, Schiller & Flexner.