Hands down victory for Citigroup

The New York court case that ended in defeat for Guy Hands today has felt surreal at times because it centred on how Terra Firma came to pay the last couple of hundred million quid for EMI in 2007. But the music group would have been a bad buy at £2.2bn, let alone £4.2bn. Getting involved in a bid for EMI at the top of the market was a horrible misjudgment in the first place. Hands's second misjudgment, in the light of Citigroup's victory, was deciding to go to court and make the allegation that he was tricked into overpaying. The two sides had held negotiations on a settlement several times before the drama entered its final stage; investors in Terra Firma will now rightly feel that it would have been better to do a deal with the bank when they could. In the next round of talks on restructuring EMI's debts, Citigroup holds the aces. Barring a successful appeal by Hands, those same investors will now ask how these misjudgments could have happened. Was Hands, on the rebound from losing the auction for Alliance Boots, too eager to land a trophy asset? Was sufficient due diligence done on EMI? Is Terra Firma a one-man show in which nobody dares to challenge the founder? If Hands wishes to raise money in future, he will have to provide answers. Pension funds answer to their trustees. It will be easy to push investment cash elsewhere. From Citigroup's point of view, an overwhelming victory – Hands down, as it were – will be greeted with relief, rather than jubilation. In commercial terms, the bank was dumb to advance a £2.5bn loan to fund the takeover, but its reputation for honest dealing is intact. Would Citigroup now be prepared to take control of EMI if Terra Firma fails to make the "equity cures" needed to avoid a likely covenant default? Well, why not? EMI, against the odds, has traded well for the past year. Finding a buyer would not be a problem.