Citigroup Inc and Terra Firma Capital Partners Ltd will know by Sept. 15 whether their dispute over the buyout house's 2007 acquisition of music group EMI will proceed to trial, a U.S. judge said.

Lawyers for Citigroup argued in Manhattan federal court Sept. 10 for summary dismissal of a 2009 lawsuit by Terra Firma accusing the bank of inflating the price of EMI Group Plc by not revealing that the only remaining bidder, Cerberus Capital Management, had withdrawn from the auction.

Terra Firma bought out EMI for more than £4 billion ($6.26 billion).

Its lawyers say that during the final days of the 2007 auction of EMI, the head of Citi's UK investment banking business, David Wormsley, made false statements to Chief Executive Guy Hands and that Terra Firma relied on those when deciding to buy.

"I will give you a bottom line ruling by next Wednesday," Judge Jed Rakoff said after almost two hours of oral arguments on the motions for and against the case proceeding to a jury trial. The judge has set a working trial date of Oct. 18.
The deal at the height of the buyout bubble has come to epitomize the worst aspects of private equity deal-making, with a high debt burden and a weak performance crippling the business.

Three weeks ago, EMI's parent company said further equity injections may be needed, particularly in 2011, as the music group continues to struggle under the weight of its debt in spite of an improved trading performance.

The music business, controlled by Hands' buyout firm, generates enough cash to cover interest payments on its £3 billion ($4.69 billion) debt burden, EMI parent company Maltby Capital said in its annual report. However, it needs to address banking covenants that will tighten steadily over the coming years.
Terra Firma has been fighting to keep the business out of the clutches of lender Citigroup after breaching the terms on its debt.

The case is Terra Firma Investments vs. Citigroup, U.S. District Court for the Southern District of New York, No. 09-10459.

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