Terra Firma, the private equity firm which paid way too much for EMI Records in 2007 and has been losing money hand over fist ever since, has now gone to court to try and stem the losses that have seen them bleeding cash like a stuck pig. A civil trial has started in the US in which Terra Firma is arguing that New York bankers Citigroup tricked them in to paying too much for the company.
Their argument is based on the accusation that Citigroup falsely claimed to Terra Firma Private Equity Partners that there were other bidders for the music company when in fact there were none. Citigroup’s lawyers are countering the allegations saying that they didn’t misrepresent the biding process to Terra Firma and that Guy Hand’s investment firm is trying to blame the bank for making a bad investment decision.
Although the saying goes that ‘only a fool and his money is parted,’ an obvious point for those of us passing the popcorn while we are enjoying the court stoush is that anyone investing money buying a company is expected to undertake due diligence. This means a forensic investigation of a company’s finances and earnings forecast. Blind Freddy would have been able to tell greedy Terra Firma that paying $5 billion for a record company in this day and age was a bad idea.
