Bulk of Hands’ wealth is in EMI

The private equity giant has personally invested about '60 to 70%’ of his net worth in foundering EMI. Hands’ at-times emotional testimony described his decision to sue a former friend as ‘a difficult thing’.

Terra Firma head Guy Hands has “60 to 70 percent” of his personal wealth tied up in the struggling EMI investment, which translates to about £100 million of his own money, it was revealed during the third day of his firm’s trial against Citi.

Hands contributed about £20 million in cash to the deal, and pledged all of his carry from Terra Firma Capital Partners II to EMI, about £70 million, a person with knowledge of the firm’s finances told PEO on the sidelines of the hearing Wednesday.

Hands testified that other senior executives pledged their carry from Fund II to EMI as well, though he only named executive Stephen Alexander.

Terra Firma values the investment at around £1.6 billion, with a debt load of about £3.2 billion, said the source. The firm bought EMI for about £4 billion. 

Terra Firma could be awarded as much as £7 billion if it wins its lawsuit, which claims Citi banker David Wormsley tricked Hands into overpaying for music publisher EMI by lying that Cerberus Capital Management was still in an auction in May 2007 when the firm had already dropped out of bidding.

Citi denies the charges, arguing Hands is looking for a scapegoat to blame for his failed investment in EMI. During cross-examination, Citi attorney Theodore Wells questioned Hands about his personal stake in EMI to show the jury how vital the investment was to Hands.

On a personal level David Wormsley is someone who we worked with very successfully over very very large number of years. To sue someone who is a friend … is a difficult thing.

Guy Hands

Hands testified he has also been worried about his investors in Terra Firma’s funds II and III, 30 percent of both of which are in EMI. He said he expressed concern in 2008 that a failure of EMI would mean losses of “hundreds of millions … for his investors” and could prevent the firm from raising future funds.

“But that’s all passed now,” Hands added without further explanation.

Wells has been grilling Hands for a day and a half and occasionally the interaction has grown tense and heated.

Wells, for example, continues to challenge Hands to produce any documentation supporting his claim that the only reason Terra Firma bid £2.65 per share on 21 May 2007 was because of Wormsley.

“Can you point to any document in the files of Terra Firma that state that Wormsley told you Cerberus was going to bid £2.62 on 21 May?” Wells asked during one of several versions of the same question. “A note? A piece of paper?”

Hands continually answered, “I am not personally aware of any, no”.

Wells also attacked Hands for his spotty memory from the time period of the deal. Hands said he doesn’t remember specific details of two vital meetings on the transaction on Sunday, May 20 2007.

During a GP meeting that day to consider approving the bid price to send to the EMI board, Hands only recalled the outcome of the meeting, a call from Wormsley during the meeting and the fact that he was very hungry and wanted a “chocolate biscuit”.

Cross examination has gotten personal at times. On Tuesday, Hands grew emotional as he admitted the decision to bring a lawsuit against Citi and implicate his “friend” Wormsley was heart-wrenching.

“From a business point of view of Terra Firma, the realities of our business are it relies on banks. Suing the banker is something you do as a very very last resort,” Hands, the firm’s chairman and chief investment officer, said. “On a personal level David Wormsley is someone who we worked with very successfully over very very large number of years. To sue someone who is a friend … is a difficult thing.”

The decision was made because the firm “had an obligation to our investors,” and there was “no alternative”, Hands testified.

Hands' cross examination resumes Friday.