Monday, December 14, 2009

Private Equity Tycoon Guy Hands Sues Citigroup For Multiple Fraud and Lies

Desperate times call for desperate measures. Guy Hands, an ex-bond trader from Goldman Sachs turned private equity tycoon is suing Citigroup for £2bn over a private equity deal gone sour. In 2007 Hands' private equity shop Terra Firma acquired music company EMI for £4bn. Citigroup was the investment bank that conducted the sale process of EMI to Terra Firma. Now Hand's is accusing Citigroup of having fraudulently instigated a bidding war between Terra Firma and a second party that allegedly did not exist. Hand's is accusing Citigroup of conjuring up a high false bid from Cerberus the second interested party, even though Cerberus had dropped out of the bidding process for EMI, forcing Terra Firma to cough up more money for the purchase.
So what made a private equity tycoon go so ballistic as to launch a lawsuit against Citigroup and bite the very hand that feeds him? How about some good old threat of bankruptcy. When Terra Firma bought EMI in 2007 for £4bn, it borrowed £2.5bn from Citigroup to complete the purchase. As is now a common story in private equity land, EMI took on so much debt that it soon found itself breaching its debt covenants. Since Citigroup is the only lender, Terra Firma had been trying to negotiate a debt for equity swap with Citigroup but to no avail. Citigroup failed to budge and its equity analyst added fuel to the fire by putting out a report suggesting that the only way out for Terra Firma was to sell EMI to Warner Music. Of course that would mean Guy Hand's takes a huge hit on the equity he put up to buy EMI, but Citigroup would escape scott free because EMI's debt would now be the obligation of Warner Music.
At this rate of increasing hostility between private equity and their erstwhile banker buddies, at least one avenue of future job opportunities is closing down for our fat-cat bonus loving investment bankers.

No comments: