On Friday, Citigroup Inc. (C) and British financier, Guy Hands mutually ended their litigation in the U.S, which has been stretching over four years. The lawsuit was related to Terra Firma Capital Partners, the private equity firm owned by Guy Hands, which purchased EMI Group Ltd. in 2007. However, both parties agreed to pursue the case in England.
In 2007, Guy Hands and his private equity team at Terra Firma offered $6.7 billion (£4 billion) as the bidding amount for EMI but failed to meet the loan payments provided by Citigroup to finance the deal. Therefore, Citigroup finally took over EMI and in Nov 2011, it vended EMI it into two parts.
EMI’s recorded music division, EMI Music was sold to Vivendi’s Universal Music Group (UMG) for $1.9 billion (£1.2 billion), while the publishing division was sold to a group of investors led by Sony Corporation of America (SCA) – a U.S. subsidiary of Sony Corporation (SNE) – for $2.2 billion.
Back in Dec 2009, Guy Hands filed a lawsuit against Citigroup claiming that a Citi banker convinced him to buy EMI at a higher price. Terra Firma claimed $8 billion (£5 billion) as damages, which was reduced to $2 billion at a trial.
Further, in 2013, a federal appeals court turned down a 2011 jury verdict, which was in favor of Citigroup. As per the verdict, Citigroup was cleared of committing any wrongdoing against Tierra Firma. Therefore, the federal court’s move provided a fair opportunity to Guy Hands to seek compensation for the bank’s wrongdoings.
However, Citigroup denied the allegations and in turn accused Guy Hands of being involved in "legal tourism" by trying to prove his claims in both the U.S. and England prior to the mutual agreement last week. Finally, both parties agreed to common terms and conditions and dismissed the case in the U.S.
Pending lawsuits are not only a burden on a company’s financials, but also dent its reputation and therefore resolving such issues at the earliest are in the best interests of any organization. Currently, Citigroup carries a Zacks Rank #4 (Sell).
Some better ranked major regional banks include Fifth Third Bancorp (FITB) and The PNC Financial Services Group, Inc. (PNC), with a Zacks Rank #2 (Buy).
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