Guy Hands has lost his fight with Citigroup. I didn’t buy the story about a seasoned buyer and seller of companies being duped into taking on a basket-case by a slippery investment banker, and neither did the New York court.
Not that EMI is a basket-case. At an operating level it is doing quite well. The trouble is, Mr Hands borrowed a lot of money to pay for it; almost certainly too much money. Once that debt was piled onto EMI, it became a basket-case almost regardless of what its managers did. Julia Finch explained the story earlier this year:
EMI’s music business – which has a heritage stretching back over 100 years – has actually performed well: with profit before financial charges up 81% to £298m as its chief executive, Elio Leoni-Sceti, has cut costs and grown market share by finding and promoting new musical talent. EMI’s Capitol Nashville label has the number one album in the US this week, with country and western band Lady Antebellum.
But Maltby – whose chairman is Lord Birt, former director general of the BBC – has plunged £1.75bn into the red as a result of a £1bn financial writedown, a vast interest bill, derivative and foreign exchange losses and restructuring costs.
The crisis is centred on the £4.2bn price tag Hands agreed when he acquired the business. With hindsight it is apparent that he paid out far too much, and he has admitted as much, launching a legal battle in the US and claiming that his adviser, Citigroup, tricked him into offering too much for the business by failing to tell him that other potential buyers had pulled out. The bank also provided some £2.6bn of debt to Hands for him to do the deal.
So Guy Hands tried to get his money back by claiming to have been tricked, which was an odd thing to do, given that, even if he won, his reputation would be in ruins. Who wants to invest with someone who can be duped into buying a basket-case?
That said, Mr Hands will almost certainly bounce back. As the FT’s Andrew Hill said:
[Y]ou may still ask whether any investment bank would wish to work with him in future. But that is to underestimate the long pedigree of Mr Hands and the short memory of bankers both on Wall Street and in the City.
Still, it gives me a good excuse to play this on a Friday afternoon. The lyrics are here, should you want to sing along.