EMI row goes to court as Terra Firma sues Citigroup over deal

Terra Firma Capital Partners got the green light from a US judge yesterday to proceed to trial against Citigroup in a dispute over Terra's £4 billion acquisition of music group EMI.

Terra Firma, the private equity giant founded by Guy Hands, claims that Citigroup inflated the price of the deal by saying another firm had made a higher, competing bid for EMI in the final days before an auction for the recording company in May 2007.

Citi was serving as EMI's financial adviser at the time but also acted as Terra Firma's lender on the deal.

Jed Rakoff , a US District Judge, allowed two of Terra Firma's claims - for fraudulent misrepresentation and fraudulent concealment - to proceed to a jury. He dismissed Terra's claims for "tortious interference" and negligent misrepresentation.

The judge set trial for 18 October. Hands and a number of Citi bankers are set to be called to testify.

Jonathan Doorley, a spokesman for Terra Firma said: "We look forward to the beginning of the trial when Citi will have to answer to a group of New York jurors."

Citigroup said in a statement it was pleased the judge had dismissed two of Terra Firma's claims.

"We believe this case is entirely without merit, and we are confident that Citi will prevail at trial on the remaining two claims," the company said.

The deal at the height of the buyout bubble has come to epitomise the worst aspects of private equity deal-making, with a high debt burden and a weak performance crippling the business.

Last month EMI's parent company and Terra subsidiary, Maltby Capital, warned that the music group might need further equity injections next year as it continues to struggle under the weight of its 3bn debt in spite of an improved trading performance. The iconic British music label represents acts such as Kylie Minogue, The Arctic Monkeys and David Bowie.