Last updated: September 8, 2011 9:01 pm

Citi looks to safeguard EMI bidders

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Citigroup is planning to indemnify bidders for EMI from any future damages claim from Guy Hands following fresh legal action by the private equity financier over the music company, according to two people familiar with the auction.

Mr Hands, who heads Terra Firma, launched the legal action on Wednesday. Citi financed his 2007 takeover of the music company, then seized it back in February. He has applied to the High Court in London for documents to be turned over in relation to the valuations used at the beginning of the year when the US bank wrested control of EMI from him through a pre-pack administration process.

Mr Hands’ move comes at a sensitive point in the auction of EMI. Citigroup is expected to ask for second round bids from as many as 10 music companies, private equity groups and others in the next three weeks.

However, the step falls short of a claim for damages, which would have to be founded on an argument that the directors of EMI’s holding company, Maltby Investments, acted improperly in putting it into administration.

A person close to the process said: “Terra Firma has always made its interest payments. Citi has not explained why it made the decision to take control of the company. The hearing will not be until the end of the year.”

Another person familiar with Citigroup’s position said Mr Hands’ “procedural move” would have “no impact” on the auction process.

“The issue regarding disclosure of the administration process is between Terra Firma and the joint administrators,” Citigroup said in a statement: “We believe there is no basis for any claim against Citi arising from the administration process and we do not consider that Terra Firma has any basis for asserting a claim against EMI.” Terra Firma and EMI declined to comment.

The US bank seized the company in February, four months before it was set to default on loan covenants, after concluding that a holding company had failed a solvency test triggered by the weight of its £3.4bn debts.

The auction of the group behind the Beatles and Kylie Minogue could raise between $3bn and $4bn. Second-round bids are expected to have been submitted by the end of the month, slightly later than planned after a turbulent summer for financial markets. Bidders have been told they will shortly be given a presentation on the “Terra Firma” situation.

The fresh legal action comes in the wake of a bitter legal dispute between the two sides. Last year a US court ruled in favour of Citi after Mr Hands sued the bank and claimed he had been misled into overpaying for the company. Mr Hands has appealed.

Early offers for EMI have come from rivals including Sony, Universal, Warner Music and BMG – a music publishing joint venture between KKR and Bertelsmann. Other bidders include the Gores brothers, who run Gores Group and Platinum Equity, and the investor Ron Perelman.

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