G24

| pdf edition | Friday November 5 2010 Business

Downloaded 06:34 GMT

Qantas CEO says ‘faulty design’ may be

behind engine failure
Alan Joyce said Qantas believes the problem was probably most
likely a material failure or design issue Page 2

Bye-bye B-sides
With the B-side now defunct, musicians are exploring other uses
for leftover songs Page 2

US equity markets react well to Federal

Reserve’s $600m stimulus
Dow gains 2% and gold hits new high after Fed’s stimulus •
Investors move out of dollar and spark overnight rally Page 3

News Corp’s referral Lord Puttnam hits Hands down victory Hands humbled by
to Ofcom sparks out over News Corp’s for Citigroup Page 5 EMI fraud case defeat
asset sell-off BSkyB takeover Page 6
rumours Page 3 Page 4 Ireland slashes
budget by £5bn as Qantas A380 landing:
Will Gary Hoffman Redrow’s mortgage fears of Greek-style Airlines were warned
bury his Northern famine can’t be bailout grow Page 5 in August over
Rock secrets in the turned into a feast engine safety Page 6
garden? Page 4 Page 4

guardian.co.uk © Guardian News and Media Limited 2007 guardian.co.uk

Registered in England and Wales. No. 908396. Registered office: Number 1 Scott Place, Manchester M3 3GG
Page  G24 Business Friday November 5 2010 06:34 GMT

Qantas CEO says ‘faulty design’ may be Bye-bye B-sides

behind engine failure
With the B-side now defunct, musicians are
Alan Joyce said Qantas believes the problem exploring other uses for leftover songs
was probably most likely a material failure Chris Salmon
or design issue
Of the singles currently in the UK’s top 10, just one can be
Associated Press downloaded alongside another exclusive new song by that
artist (what your granny would call a “B-side”). That track is
Qantas said the midair blowout near Singapore on one of its
Grand Canyon, a heartfelt ballad by Cee Lo Green, which is the
Airbus [http://tinyurl.com/35q84df] superjumbos was likely
flipside to his No 1 hit, Fuck You. The irrelevance of B-sides in
caused by material failure or faulty design in one of its Rolls-
a time when listeners can – and do – just download the track
Royce [http://tinyurl.com/5fzen7] engines, as the carrier ferried
they want can be proved by Grand Canyon’s performance
stranded passengers to Australia [http://tinyurl.com/4fdbfv]
online. Last.fm’s statistics show that where Fuck You has had
today.
437,240 plays, Grand Canyon has managed just 36. And while
Qantas CEO Alan Joyce told a news conference in Sydney
the combined view count for the various Fuck You videos on
that it was too early to say exactly what caused the engine
YouTube is more than 25m, nobody uploaded Grand Canyon.
failure that prompted the emergency landing on Thursday
Nor does Hype Machine have any record of anyone blogging
shortly after takeoff from Singapore, and said that a thorough
about the track. Despite accompanying a single that has sold
investigation was under way.
more than 250,000 copies in the UK, Grand Canyon might as
The company grounded all six of its fleet of Airbus A380s.
well not exist.
“This is an engine issue and the engines have been
What, then, to do with the extra songs from your recording
maintained by Rolls-Royce since they were installed on the
session that didn’t quite make the album? Giving them away
aircraft,” Joyce said. “We believe this is probably most likely a
is an increasingly popular option. And, in fact, the iTunes EP
material failure or some type of design issue. We don’t believe
for Green’s Fuck You contains another new non-album track,
this is related to maintenance in any way.”
Georgia, which you can receive free in return for your email
It was most serious mid-air incident involving the double-
address at ceelogreen.com [http://tinyurl.com/36w225v]. That
decker Airbus A380 since it debuted in October 2007 with
track has been widely blogged about and attracted around
Singapore Airlines flying it to Sydney the same route that
100,000 plays for the various fan uploads on YouTube. It seems
Qantas flight QF32 was flying when it was stricken.
if you let people have your surplus tracks for nothing, people
Passengers were put on a relief flight bound for Australia
will at least hear them.
on Friday morning, a day after the A380 suffered an engine
Plus, of course, a free download can help promote your
blowout soon after taking off from Singapore, shooting flames
work. That’s the thinking from Jonny, the new band of Teenage
and shedding large metal chunks over an Indonesian island.
Fanclub’s Norman Blake and Gorky’s Zygotic Mynci’s Euros
It later made a safe emergency landing in Singapore, and
Childs. This week, they unveiled a free four-track EP, at bit.
Qantas grounded all six of its A380s.
ly/jonnyep []. The tracks won’t be on their forthcoming album,
“We have just taken off now. The flight was slightly delayed
but they serve as a fine advert for the band’s psychedelic pop
but we are told to expect a fast short flight of 6 hours 45
charms (particularly Gloria, their unlikely tribute to Gloria
minutes,” passenger Matthew Hewitt told The Associated
Estefan). And, because they are free, they might even reach a
Press in a text message. Other passengers earlier said some of
wider audience than the album they are promoting. Meanwhile,
them were flying on two scheduled Qantas flights to Perth and
Popjustice Hi-Fi, the new label of the excellent Popjustice.com
Sydney, which had already left.
blog, has had the terrific idea of giving away the B-side of every
The stricken A380 was carrying 440 passengers and 26 crew.
single it releases, from popjusticehi.fi [http://tinyurl.com/
Qantas had earlier said the plane was carrying 433 passengers
3x9ldbs]. The pick of the three available so far is the bittersweet
but corrected the number on Friday without an explanation.
pop blast of Lydia by Japayork.
After the plane touched down in Singapore, the engine
Blogger Red Kelly would, presumably, approve of that
closest to the fuselage on the left wing had visible burn marks
approach. For the last five years, he’s been posting flipsides
and was missing a plate section that would have been painted
from his extensive collection of classic soul and R&B 45s to his
with the red kangaroo logo of the airline. The upper part of the
wonderful MP3 blog, redkelly.blogspot.com [http://tinyurl.
left wing also appeared damaged, indicating that one or more
com/yreg3x]. If you need evidence as to why the demise of the
pieces from the engine gouged a hole in the wing.
B-side could be considered a bad thing for music, the Solomon
Passenger amateur video from inside the plane showed
Burke gems he’s been posting in recent weeks certainly provide
white vapor coming out of the wing as the A380 landed.
it.

guardian.co.uk © Guardian News and Media Limited 2007 guardian.co.uk

Page  G24 Business Friday November 5 2010 06:34 GMT

intelligent enough to understand there is a risk of rejection and

that offering to sell Sky News might turn the tables.”
US equity markets react well to Federal “For sentimental reasons, or psychological reasons, selling
Reserve’s $600m stimulus a paper may be difficult, but selling Sky News, which is not
profitable and is not as important a part of the puzzle, may be
•Dow gains 2% and gold hits new high after acceptable [to Murdoch]”.
Fed’s stimulus • Investors move out of News Corporation declined to comment on the Sky News
sale suggestion, although sources indicated that they “did
dollar and spark overnight rally
not recognise the speculation”. The company also said it was
Edward Helmore “confident that the proposed investment would not adversely
affect media plurality in the United Kingdom” and added that
US equity markets gave their firm stamp of approval to Ben
it “looks forward to discussing any substantive issues with the
Bernanke’s $600bn (£370bn) stimulus measures [http://tinyurl.
relevant authorities”.
com/2f843to] as stocks rose to their highest level since the
Last month, an alliance of competing media groups,
collapse of Lehman Brothers in September 2008.
including the BBC, Guardian Media Group, which publishes the
The Dow closed up 219.7 points up, or 2%, to 11,434.84 as
Guardian, Channel 4, Daily Mail owner DMGT and Telegraph
investors moved out of the dollar and into the markets. Oil
Media Group, wrote to Cable urging him to investigate the Sky
rose 2% and gold 3%, hitting a new all-time high. Analysts say
takeover. A Competition Commission investigation would
the price spikes represent a delayed reaction to the Federal
address concerns raised by News Corp’s competitors over the
Reserve’s quantative easing package announced on Wednesday.
concentration of media power in the hands of a single company.
“QE2 is hitting the market big time,” Peter Tuz of Chase
News Corp bid 700p a share for the 61% of Sky it does not
Investment Counsel told CNN. “The rally really took off
already own in June. The Sky board rejected the offer and wants
overnight with global markets and commodities, then spread to
News Corp to pay 800p, but the two companies agreed to defer
the US, and now we’re seeing it just take off.”
price negotiations until the regulatory process is complete.
Sources close to Ofcom said its inquiry had only just started
and it was too early to speculate on its likely outcome.
News Corp’s referral to Ofcom sparks
The prospect of breaking up Rupert Murdoch’s UK media
asset sell-off rumours empire is likely to appeal to some Liberal Democrat MPs, who
are hostile to the media mogul in a way that their Conservative
Vince Cable’s decision has raised coalition partners are not.
speculation about how media conglomerate It is likely that a full Competition Commission inquiry, which
would take about six months, could also attach other conditions
will win approval for BSkyB takeover
to the Sky takeover. That could include recommending that
James Robinson News Corp sell one or more of its British papers. It is far from
certain that Murdoch would see that as a price worth paying for
Vince Cable [http://tinyurl.com/5p4nvq]’s decision to refer
the Sky takeover to proceed, however.
News Corp’s £8bn bid for BSkyB [http://tinyurl.com/3ux2as] to
News Corp was surprised by the speed of Cable’s referral,
media regulator Ofcom [http://tinyurl.com/5nmlqw] triggered
which was announced at 7am today, less than 12 hours after
speculation tonight that the media conglomerate could be
the company formally notified the European commission of its
forced to offload some of its UK assets to win approval for the
intention to bid for Sky.
deal.
News Corp argues that an earlier ruling by the Competition
The Liberal Democrat business secretary acted this morning
Commission into its shareholding in ITV found that News Corp
– just two days after the company behind the Sun and the Times
already in effect controls the pay-TV company. It claims that
formally notified regulators it wanted to buy the 61% of BSkyB
owning 100% of the company does not fundamentally change
it does not own – and asked Ofcom to carry out a public interest
its relationship with Sky and the takeover should be therefore
assessment of whether the deal would damage media plurality
be cleared.
in the UK.
That is disputed by some lawyers, however. Becket McGrath,
Ofcom, which is run by Ed Richards, a former adviser to
a competition lawyer with Edwards, Angell, Palmer & Dodge,
Tony Blair and Gordon Brown, is due to report back to Cable
said: “The argument the Competition Commission have
by the end of the year at the latest. If it finds there is a case to
already concluded that News Corporation already has material
answer, Cable could then ask the Competition Commission to
influence over Sky is not legally robust.
investigate further.
“The merger regime distinguishes between different degrees
The commission has the power to recommend blocking
of control – in other words it recognises that there can be a
the deal, or requiring Rupert Murdoch to sell off parts of his
difference between owning 39.1% of a company and 100%.”
company to win approval for the takeover. However, a final
Cable’s decision to refer the bid could expose rifts at cabinet
decision would have to be made by Cable in conjunction with
level. It is understood that most senior Tories, including the
other cabinet members.
prime minister, are relaxed about the prospect of News Corp
Sources close to the European commission – where News
taking full control of Sky.
Corporation [http://tinyurl.com/b2zwra] also has to seek
regulatory approval – today indicated that the company had
explored the idea of selling Sky News to get the merger through.
One source said: “The speculation is that News Corp may be
guardian.co.uk © Guardian News and Media Limited 2007 guardian.co.uk
Page  G24 Business Friday November 5 2010 06:34 GMT

favours whatsoever by appearing to behave like one”.

Later, Lord Birt said he admired the “bold, buccaneering
Will Gary Hoffman bury his Northern spirit” of Rupert Murdoch but warned that Sky was “a financial
Rock secrets in the garden? behemoth now dwarfing other players, including the BBC,
financially”.
Former Northern Rock boss’s knowledge He added: “I hope the government and the regulators
surely isn’t worth $500,000 to keep him will resist News Corporation’s desire to wholly own Sky. The
opportunities that cross-subsidy, cross- promotion and the
doing nothing
opportunities of bundling could easily see News Corporation’s
Nils Pratley dominance in newspapers increase”.
Puttnam alluded to a statement last year by James Murdoch,
Can Gary Hoffman really have acquired valuable commercial
Rupert’s son who runs News Corporation in Europe and Asia, in
secrets during his two-year spell as chief executive of Northern
which he called the scale of the BBC’s ambitions “chilling”. The
Rock [http://tinyurl.com/dgqzkn] that could be used against
peer said the scale of News Corporation’s empire would “freeze
the nationalised bank?
to death” rivals, highlighting a projection that in 2016, when the
Ron Sandler, chairman of the Rock, thinks so [http://tinyurl.
licence fee deal is up for renewal, BSkyB’s income will be 220%
com/3ahdlwl]. He says it is vital that Hoffman does not start
that of the BBC.
work at his new employer, the start-up NBNK, for another six
He also cited the takeover of Channel 5 by Richard Desmond,
months. Hoffman will collect about £500,000 in salary and
owner of the Daily Star and Daily Express, to show the dangers
pension contributions while he twiddles his thumbs.
of companies owning newspapers and television channels.
Non-compete clauses are common in executives’ contracts,
Mentions of Channel 5 in Mr Desmond’s newspapers soared
but what is the point of enforcing them in this case? Surely it
from 92 in 2009 to 1,073 times this year.
would be safe to let Hoffman start work tomorrow and thereby
He said: “Where should we in this country seek to draw
save half a million quid? NBNK would probably be happy
the line between information and influence? The scope for
to offer guarantees that it would not pinch the Rock’s best
ensuring that news in particular can be manipulated to reflect
customers. It has already pledged not to bid for it for 12 months.
a prejudicial viewpoint across different media is considerable,
Making Hoffman the best-paid gardener on the state’s payroll
especially since if the other shareholders were driven out, News
for six months feels like overkill.
Corp would have all but untrammelled control on Sky News.”
Puttnam denied that the BSkyB outcry was a case of the
“liberal chattering class getting itself into a lather over its
Lord Puttnam hits out over News Corp’s
favourite straw man”. He pointed out that along with the
BSkyB takeover Guardian and Channel 4, newspaper groups including the
Telegraph and Associated Newspapers signed a letter to Vince
Film producer says UK must block Rupert Cable calling for an investigation into the attempted buy-up.
Murdoch deal or country will face threat to
‘consensus-based democracy’
Redrow’s mortgage famine can’t be
Mark Sweney
turned into a feast
Film producer Lord Puttnam hit out at News Corporation
[http://tinyurl.com/b2zwra]’s proposed takeover of BSkyB It’s too early to relax lending standards and
[http://tinyurl.com/59cv4h] today, warning that the UK is not
hand out 95% mortgages, as Redrow’s Steve
a “banana republic” and that Rupert Murdoch [http://tinyurl.
com/cts2lo]’s proposed deal must be blocked or the country will
Morgan ought to realise
face a “genuine threat to plural, consensus-based democracy”. Nils Pratley
Opening a debate in the House of Lords [http://tinyurl.com/
Steve Morgan at Redrow [http://tinyurl.com/5yh8u7], the
5pycov] on media plurality, the Channel 4 deputy chairman
housebuilder, is hopping mad. A mortgage “famine” is
said the UK was on the edge of a “slippery slope that could find
depriving a generation of the right to buy their first homes with
us falling further and further under the influence of a US-based
a 95% mortgage, as their parents and grandparents did. That
owner with a highly questionable interest in the benefits of a
pesky Financial Services Authority is to blame, he thinks. So
diverse and flourishing plural media in the UK”.
does the Council of Mortgage Lenders, which launched its own
The Chariots of Fire producer – who warned that “the nature
tirade against the regulator’s “flawed and impractical” review of
of 21st-century sovereignty” was at stake – was supported in
the mortgage market.
the special debate by speakers including former BBC director
The duo should calm down. It is true, of course, that
general Lord Birt, composer Lord Lloyd-Webber and Lord
tighter lending standards, as encouraged by the FSA, make
Hollick, the former chief executive of a company that once part-
it significantly harder for many twenty-somethings to get
owned ITV.
a mortgage. But Morgan and the CML have chosen an odd
Lord Puttnam told peers “the situation we are now dealing
moment to make the argument that the regulator has gone too
with is unprecedented and if unchecked [it] offers a genuine
far in its drive to promote responsible lending.
threat to plural, consensus-based democracy in this country …
House prices are falling again and nobody can say with
there is a point at which forbearance ceases to be a virtue,” he
certainty that interest rates won’t be significantly higher in 12 or
said. “The UK is not a banana republic and we do ourselves no
24 months’ time. Even at current prices, houses look about 20%
guardian.co.uk © Guardian News and Media Limited 2007 guardian.co.uk
Page  G24 Business
overvalued against long-term measures of affordability, such
as price to average earnings. That is a dangerous climate – for
lender and borrower – in which to distribute 95% mortgages
[http://tinyurl.com/6jkgo7].
In the circumstances, it is reasonable to ask lenders to take
a strict(ish) interpretation of the FSA’s guidance on interest-
only mortgages – that the borrower should be able to afford a
repayment mortgage. To use the FSA’s phrase in its slapdown to
the CML, it’s common sense.
True, the FSA’s stance won’t encourage the building of
houses. But there’s a trade-off here: greater financial stability
comes at the expense of less easy access to credit for those
without savings. There will come a time when it is appropriate
to relax lending standards – but it’s not now.
Hands down victory for Citigroup
US bank Citigroup has triumphed, and now
it can go looking for a buyer for EMI if Terra
Firma fails to cling on to the music group
Nils Pratley
The New York court case [http://tinyurl.com/2ukzoym]that
ended in defeat for Guy Hands [http://tinyurl.com/an7bmp]
today has felt surreal at times because it centred on how Terra
Firma came to pay the last couple of hundred million quid for
EMI [http://tinyurl.com/6eof93] in 2007. But the music group
would have been a bad buy at £2.2bn, let alone £4.2bn. Getting
involved in a bid for EMI at the top of the market was a horrible
misjudgment in the first place.
Hands’s second misjudgment, in the light of Citigroup
[http://tinyurl.com/3fhw72]’s victory, was deciding to go
to court and make the allegation that he was tricked into
overpaying. The two sides had held negotiations on a
settlement several times before the drama entered its final
stage; investors in Terra Firma will now rightly feel that it
would have been better to do a deal with the bank when they
could. In the next round of talks on restructuring EMI’s debts,
Citigroup holds the aces.
Barring a successful appeal by Hands, those same investors
will now ask how these misjudgments could have happened.
Was Hands, on the rebound from losing the auction for Alliance
Boots, too eager to land a trophy asset? Was sufficient due
diligence done on EMI? Is Terra Firma a one-man show in which
nobody dares to challenge the founder?
If Hands wishes to raise money in future, he will have to
provide answers. Pension funds answer to their trustees. It will
be easy to push investment cash elsewhere.
From Citigroup’s point of view, an overwhelming victory
– Hands down, as it were – will be greeted with relief, rather
than jubilation. In commercial terms, the bank was dumb to
advance a £2.5bn loan to fund the takeover, but its reputation
for honest dealing is intact.
Would Citigroup now be prepared to take control of EMI if
Terra Firma fails to make the “equity cures” needed to avoid a
likely covenant default? Well, why not? EMI, against the odds,
has traded well for the past year. Finding a buyer would not be
a problem.
guardian.co.uk © Guardian News and Media Limited 2007
Friday November 5 2010 06:34 GMT
Ireland slashes budget by £5bn as fears
of Greek-style bailout grow
Ireland’s cost of borrowing rises again as
government announces plans to cut more
than expected in upcoming budget
Lisa O’Carroll in Dublin
Ireland [http://tinyurl.com/6kttb4]’s cost of borrowing hit
record levels again today after plans to slash €6bn (£5.2bn) in
the upcoming budget – twice that predicted three months ago
– were announced by a government struggling to control the
country’s fiscal crisis.
Finance minister Brian Lenihan conceded the cuts were
worse than originally anticipated but that they were “deemed
necessary and will underline the strength of our resolve and
show the country is serious about tackling our public finance
difficulties”.
The announcement came as fears that Ireland would
seek a Greek-style bailout in the new year grew sharply with
borrowing rates on the international markets rose to historic
highs.
For the eighth day in a row Ireland’s cost of borrowing rose,
to hit 7.77%, according to Bloomberg, while Markit reported
that the cost of insuring Irish sovereign debt rose was being
quoted at 600 basis points, a rise of 200 basis over the past two
weeks, to €60,000 per €1m of bonds. This reflected mounting
scepticism the country was doing enough to keep Ireland out of
the European rescue fund.
“It is really frightening. Just as Lenihan was announcing
€6bn cuts, the market was making clear that was not enough,”
said Limerick university economist Stephen Kinsella. “The
very announcement designed to calm people down has freaked
them out even further.”
The government withdrew from the bond markets last
month because of the punitive costs of borrowing and there are
fears its only option will be a bailout unless it can convince the
markets it now has its finances in order.
Today Portugal also appeared to move closer to a bailout.
The parliament approved a tough austerity budget but the
markets were unimpressed, with the yield on bonds jumping to
6.436% from 6.168%.
Ireland is due to outline its four-year public finance plan last
this month, with the final details of where the axe will fall on
budget day, 7 December. Education, health and social welfare
are all expected to be hit hard.
“It is about closing the gap between what you’re spending
and what you’re earning,” said the Taoiseach, Brian Cowen. He
accepted the budget would cause hardship but said it would
be irresponsible not to tackle the worst crisis in the country’s
history head-on.
Opposition finance spokeswoman Labour’s Joan Burton said
taking €6bn out of the economy in 2011 was “unacceptable” and
would jeopardise prospects of growth and risk increasing the
unemployment which is about13.5%.
Deputy finance spokesman Brian Hayes of opposition party
Fine Gael questioned how the government would meet its 1.7%
growth target when there isn’t “any money left in circulation”
in the economy.
guardian.co.uk
Page  G24 Business Friday November 5 2010 06:34 GMT

Both sides reached for their lawyers – David Boies, famous

for his handling of the Microsoft anti-trust and the 2001
Hands humbled by EMI fraud case Florida recount cases, for Terra Firma; and Ted Wells, who has
defeat defended white-collar criminals such as Michael Milken and
Eliot Spitzer, for Citigroup. Boies was not present for the verdict
Jury takes just four hours to throw out – he had already left for California. But Wells told reporters:
claims that Citigroup tricked Terra Firma “This was a terrible ordeal for David Wormsley. He was wrongly
accused. He was innocent and he’s a real decent guy.”
boss over purchase of EMI
Terra Firma said it would continue to try to turn EMI around
Edward Helmore in New York with its creditor, Citigroup. But it is widely anticipated it will be
unable to meet its debt repayment obligations next March and
Guy Hands [http://tinyurl.com/an7bmp], the private equity
could forfeit control of the music company to the bank.
baron, was left humiliated last night after jurors took just over
“We are disappointed that the jury found that we did not
four hours to dismiss his fraud lawsuit against the US bank
prove that we relied on misrepresentations from Citi which
Citigroup [http://tinyurl.com/3fhw72].
caused a loss to our investors,” Terra Firma said.
After the brief deliberations, Hands made no comment as he
Citigroup, in response, issued a statement of its own: “We
quickly left Judge Rakoff’s courtroom in Manhattan.
are very pleased that the jury reached a unanimous verdict
Hands had accused Citi of “fraudulent misrepresentation” in
confirming what we have said from the beginning: that Citi and
his disastrous £4.2bn takeover of the British label EMI [http://
David Wormsley treated Terra Firma with honesty and integrity
tinyurl.com/6eof93].
in the EMI transaction. The jury’s verdict makes clear that Terra
The lawsuit, which cost both sides millions of dollars and
Firma’s irresponsible accusations of fraud were nothing more
risked the reputations of Hands and Citigroup banker David
than a misguided attempt to gain leverage in debt restructuring
Wormsley, was described by Rakoff as little more than “a
negotiations.”
catfight between two rich companies”. But he added it was the
The case has been watched by the investment banking
best-argued case ever brought before him.
industry for signs it should tighten policies around advising
Hands had claimed that his private equity company,
one client in a transaction while financing the other, as Citi was
Terra Firma, was tricked by Wormsley into the 2007 auction.
doing in this deal, and collecting fees from both. At one point,
Citigroup claimed Terra Firma’s legal action was only brought
Citi officials congratulated each other on being paid “on both
to reduce the £2.5bn debt it owes the bank following the
sides of the deal”.
acquisition – regarded as one of the worst in City history. The
For the private equity industry, too, the case will be seen
bank’s lawyers said Hands’s action was “buyer’s remorse”.
as a sobering footnote to the era of easy lending during which
But the jurors said they found little in Terra Firma’s case to
small firms could raise billions to purchase multi-billion dollar
support its claim.
institutions they would find hard or impossible to run. “We
Outside the court, Dennis Posillico, a juror, said “there really
believe that this was an important action to bring and that we
wasn’t any proof” that Citi had misled Terra Firma.
had a responsibility to our investors to bring it,” Terra Firma
Terra Firma’s lawyers hoped to win over the jury with
continued to maintain last night.
testimony about three alleged phone calls from Wormsley to
Roger Faxon, CEO of EMI Group said his company was
Hands on the weekend before the auction closed in May 2007,
unaffected by the ruling: “EMI has had a solid operational
telling him rival private equity firm Cerberus was still bidding.
performance over the last six months, driven by considerable
But neither man had clear recollections of the conversations.
success in both recorded music and music publishing,” he said.
Wormsley maintained he never misled to Hands over the
“We are wholly focused on further developing our business,
auction; and all Hands could recall of one conversation was how
and on delivering positive outcomes for the talented artist and
much he wanted a chocolate biscuit. “They were just phone
songwriter communities we are privileged to represent.”
calls,” Pasillico added, “and phone calls are not solid evidence.”
He explained that he had been sympathetic to Hands until
Citi’s lead lawyer, Ted Wells, had offered an impassioned
summation. “I felt [Hands] had a raw deal from Citi. Then I
Qantas A380 landing: Airlines were
changed my mind.” warned in August over engine safety
Terra Firma initially claimed more than $8bn (£4.9bn) in
damages from Citi on the grounds that it would not have bid if • Two airlines ground fleets after
it had known there were no other bidders. But the court heard
emergency Qantas landing • Europe’s
that Hands had pressured Citi into financing the deal and at one
point was prepared to go 20p over the final 265p per share to
air safety watchdog issued safety alert in
secure the firm. summer
Terra Firma anticipated making a 20% per annum return Peter Walker
on its £4.2bn investment; instead, the business continued to
crumble. Even before the deal was completed, Citi knew it had Two airlines grounded their fleets of Airbus [http://tinyurl.com/
made a mistake. The bank ultimately wrote off $2bn. 35q84df] A380 superjumbos today following an emergency
In court, Citi accused Hands of being unwilling to take landing by a Qantas plane after one of its engines blew apart in
responsibility for his mistake. Instead, he turned on his friend mid-air, damaging a wing and showering debris on the ground
and adviser Wormsley, suing him and Citi for fraud in New York below.
last December. It emerged tonight that in August Europe’s air safety

guardian.co.uk © Guardian News and Media Limited 2007 guardian.co.uk

Page  G24 Business
watchdog issued an alert about abnormal wear inside the
British-made Rolls Royce engines used on the huge, double-
decker double decker planes, though experts said it was too
early to tell if the two were connected.
Flight QF32 from London to Sydney had just taken off from a
stopover in Singapore when the plane suffered what the Qantas
chief executive, Alan Joyce, described as a “significant engine
failure”.
Passengers described a loud bang and a flash of flame. They
then saw part of the casing of engine apparently stripped
away, and a small hole in the wing. Dozens of pieces of debris,
believed to be from the engine, were found on the Indonesian
island of Batam. “There were flames, yellow flames came
out, and debris came off. You could see black things shooting
through the smoke, like bits of debris,” said passenger
Rosemary Hegardy.
While the plane, carrying 433 passengers and 26 crew, was
able to circle to dump fuel before landing safely at Singapore’s
Changi airport shortly before midday local time, Qantas
– famous, thanks to the film Rain Man, for its enviable safety
record – announced it was grounding its A380s. Experts from
the UK Air Accidents Investigation Branch flew to Singapore
yesterday to help the inquiry.
“We do take our safety reputation unbelievably seriously
and we’re not going to take risks with passenger safety,” Joyce
said. “As a precaution, we’re suspending flights of the A380.”
Early this morning Singapore Airlines said its A380 services
would continue as technical checks had been completed.
Lufthansa was conducting checks without interrupting flights.
Two other airlines that fly the A380 use other engines.
The incident – the most serious safety scare involving
the world’s biggest airliner in its three years of service – is a
particular worry for Rolls Royce, which makes the Trent 900
engines fitted to most A380s at its Derby factory. The company,
which lost more than 5% of its share price today, said it was
working with airlines to see what went wrong. It refused to
discuss the directive issued by the European Aviation Safety
Agency in August which warned that scrutiny of stripped Trent
900s had found that unusual wear on splines used to secure
the turbines could lead to engine failure coupled with “oil
migration and oil fire”.
Guy Hands’s $4bn purchase of EMI
sounded off-key from the start
One of Britain’s most successful private
equity investors did not understand the
culture of the music business
Richard Wachman
EMI [http://tinyurl.com/6eof93] could be seized by Citigroup
[http://tinyurl.com/3fhw72] after Guy Hands [http://tinyurl.
com/an7bmp] lost his legal fight against the US investment
bank. In the wake of Hands’s dramatic defeat in New York,
analysts said it was unlikely that investors in his private equity
[http://tinyurl.com/2e972d] firm Terra Firma would now stump
up more cash to prevent the firm from breaching the terms of
banking covenants agreed with Citigroup, which is owed £3bn.
If he fails to make good those covenants, which could be
breached as early as March, Citigroup will take control of EMI
guardian.co.uk © Guardian News and Media Limited 2007
Friday November 5 2010 06:34 GMT
and sell it to a rival music group such as Warner Music of the US,
which has long coveted the British label.
In the meantime, Hands has other options. He could use
his own money to retain control of the company for a while
and help to negotiate a sale himself, or could simply hand the
company over to Citigroup, resigned to the knowledge that he
cannot save the heavily indebted group whose artists include
Robbie Williams and Coldplay.
Another scenario is that he negotiates a capital restructuring
with Citigroup, which has been unable to syndicate the loans
since the credit markets seized up in 2008. This would involve
a debt-for-equity swap that would see the US bank exchange
debt for shares in EMI, as well as bringing in outside investors.
Conceivably, Hands could retain a tiny stake, giving him the
chance to save face and perhaps profit from some of the upside
if EMI were acquired by Warner.
Whatever happens, his purchase of EMI for £4bn in 2007 will
go down as one of the worst deals of the boom years. From the
beginning, things went wrong for Hands: key artists criticised
his bean-counter approach and artists such as Radiohead and
Paul McCartney took their business elsewhere.
There was also an air of comedy in the early days when he
lambasted EMI for spending £200,000 a year on “fruit and
flowers”, unaware these were a euphemism for payments for
drugs and sex.
Even by Hands’s own admission, the purchase of EMI has
been less than successful. Terra Firma investors, including
Hands – who has shelled out millions of his own cash – have
written off most of their £1bn equity investment. In the music
industry [http://tinyurl.com/9x2l9n], the company has been
slated for being a financial basket case, earning itself the
dubious sobriquet of “Every Mistake Imaginable”.
Hands was criticised for his lack of understanding of
musicians and artists, as well as for dismissing scores of
artist and repertoire (A&R) agents, forcing through 3,000
redundancies and cutting too heavily from the marketing and
advertising budget.
EMI has lost ground to Warner in the UK, but has increased
its market share in the vital US market. Although the label has
recently seen its fortunes improve, it reported an annual loss of
£624m for 2009/2010.
Hands may also regret pushing so hard to have the case
heard in New York, a ploy to avoid jeopardising his non-
domicile tax status. He moved to Guernsey to reduce his tax
bill, but his children and wife still live in the UK and he sees
them less often than when the family lived together in Kent.Up
until the EMI purchase, Hands had been one of Britain’s most
successful private equity investors, buying and selling assets
such as Angel Trains and Odeon cinemas at a huge profit.
*
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Page  G24 Business Friday November 5 2010 06:34 GMT

engines has experienced a failure, and it looks to be a fairly

massive internal failure at that,” said Péter Marosszéky, a
A380 superjumbos grounded after former airline engineer now at the University of New South
engine explodes on Qantas flight Wales in Australia. “This type of incident has been seen
previously but it was a long time ago and with much older
• Passengers tell of horror as debris planes than the A380.”
damages wing • Fragments of engine Another analyst, who asked not to be named, said
photographs of the debris on Batam appeared to show that
scattered over Singapore
sections of turbine blade had sheared off, as well as the engine’s
Peter Walker and Tim Webb protective casing.
While the A380 is designed to fly safely on two engines,
The sudden, terrifying noise came from the left side of the
the analyst said such an engine failure was deeply worrying.
plane six minutes after flight QF32 took off from Singapore. It
“If I was Rolls-Royce I would be very alarmed at this,” he said.
sounded, one passenger recounted, like “a shotgun going off”.
“They will need to carefully check the manufacturing records to
“Part of the skin [of the engine] had peeled off and you could
see whether something went wrong with this particular engine
see the foam underneath, pieces of broken wires sticking out,”
or whether it’s a more general fault.”
Tyler Wooster told Nine Network television in Australia.
After the airliner landed, firefighters surrounded it, pouring
“My whole body just went to jelly and I didn’t know what
water over the other left-side engine, which seemingly could
was going to happen as we were going down, if we were going to
not be shut down manually, perhaps indicating damage to a
be OK.”
control system.
One of the four Rolls-Royce [http://tinyurl.com/5fzen7]
Rolls-Royce issued a statement which said that it would
engines on the Qantas A380 superjumbo had blown apart
be “inappropriate” at such a “very early stage” to draw any
without warning, sending debris falling on to an island below
conclusions from the incident. But it is the second safety scare
and – photographs taken by passengers suggest – punching a
to affect its engines in a few months.
hole in the plane’s left wing.
In August, a $17m Trent 1000 engine, also made at Rolls-
A Singapore-based businessman, Ulf Waschbusch, also on
Royce’s plant in Derby, suffered an “uncontained failure” during
the flight to Sydney, heard a loud boom and immediately looked
testing for the new Boeing Dreamliner 787 plane. A month later,
out of the window. “I saw pieces of the engine fly off the wing,
Boeing delayed the delivery date for its first Dreamliner after
through the wings itself, and short bursts of flames for about a
Rolls-Royce said it could not provide an engine for test flights
second or two at that time,” he said. “It was one of the scariest
this autumn.
things I have ever seen on an aircraft.”
Yesterday’s incident is a potentially significant blow to one of
The scene was almost as dramatic directly below, on the
the last surviving British titans of industry, which prides itself
Indonesian island of Batam, close to Singapore, as dozens of
on its global reputation for engineering excellence.
pieces of debris from the engine fell to earth. “We heard an
As Rolls-Royce shares dropped in value by 5% in London,
explosion,” a teacher in the island, Indra Kurniawan, told the
on the other side of the Atlantic those of General Electric, its
BBC World Service. “Then I saw rubbish in the sky but after one
biggest rival and a partner in Engine Alliance, rose by 2.6%.
of the pieces hit our school we all knew it was debris from the
Rolls-Royce is one of the UK’s largest employers, with 11,000
plane.”
at its Derby site alone. Manufacturing and servicing civil aircraft
After just under two hours of circling to dump fuel, the A380
engines accounts for almost half the group’s total sales.
landed back at Singapore without any injuries. Once it was
on the ground there was “immediately rapture, shouting and
crying” among the 459 people on board, Waschbusch added.
Another passenger, Lars Sandberg, told the BBC that the
Morrisons and Unilever warn of price
captain kept passengers updated throughout. rises in the new year
“[He] did a good job in reassuring us, making
announcements every few minutes. I’m just happy to be alive Supermarket and food manufacturer joins
and back in the terminal building.”
chorus of firms spreading bad news about
While the passengers’ ordeal was over, it is another matter
for Airbus [http://tinyurl.com/35q84df], and particularly for
prices next year
Rolls-Royce, one of two rival companies supplying engines Julia Finch
for the A380. The British company powers the superjumbos
A leading food retailer and manufacturer today joined the
used by Qantas, Singapore Airlines and Lufthansa, while the
growing list of businesses warning of price rises in the new year.
US group Engine Alliance fits A380s used by Air France and
Supermarket Morrisons [http://tinyurl.com/55d7ok] said
Emirates.
food inflation [http://tinyurl.com/4m24t7] would run at 2-3% in
Investigators from Airbus, the European Air Safety Agency
the coming months. The big grocers’ estimates of inflation are
and France’s civil aviation watchdog – Airbus is based in France
usually lower than official figures.
– were last night travelling to Singapore to examine the plane.
At the same time Unilever [http://tinyurl.com/6ayk7z], the
Aviation experts described it as the most serious incident
world’s third-biggest food and consumer goods group, said it
involving an A380 – touted as the most economical and quietest
was trying to push through price rises to offset the soaring price
as well as the largest aircraft in the world – since the plane went
of commodities.
into commercial service three years ago.
The warnings came just a day after fashion chain Next said
“It appears from the images of the plane that one of the
the 90% increase in the price of cotton could force the price of
guardian.co.uk © Guardian News and Media Limited 2007 guardian.co.uk
Page  G24 Business
clothing up by 10% or more by next spring. The retailer said it
expected price rises to approach 8% in the first three months of
the year and that increases could then move into double digits
unless the price of cotton went into reverse. Next’s boss, Lord
Wolfson, blamed speculators for driving up commodity prices.
Shoppers face substantial rises in the cost of living in the
new year. VAT increases from 17.5% to 20% on 4 January and
energy group Scottish & Southern last week announced a 9.5%
increase in gas prices from January, which other suppliers are
expected to follow. Train fares are due to increase by up to 11%.
Morrisons was revealing a 1.3% increase in like-for-like sales
over the last three months – a gain helped by rising prices. Its
finance director, Richard Pennycook, said shoppers would buy
more goods on promotion to cut their shopping bills.
The grocer is extending its usual Christmas voucher savings
campaign into January, in a bid to help ease the price pain facing
shoppers early next year. Shoppers who spend more than £40
a week in the store in the weeks leading up to Christmas will be
able to earn a £30 voucher to spend in January. Pennycook said
the extension was designed to “help with the effects of the VAT
increase”.
Unilever – whose products include food brands Flora, PG
Tips, Wall’s and Magnum, personal care labels Dove, Lynx and
Impulse and household goods Persil, Cif and Domestos – said
it was trying to push through price rises where competitive
pressures allowed.
In a third-quarter profits statement the group said its prices
had been pushed down 1.2% on last year. That was offset by
selling nearly 5% more goods, but it hoped to increase prices in
the last three months of the year.
In the UK, it has been raising tea prices in the wake of big
increases in the price of tea from growers. In the past two
years, said a spokesman, the cost of tea has increased by 30%.
He also pointed to the increase in the oil price, which impacts
transport and packaging costs and has repercussions on the
manufacturing costs of products such as detergent. “We can
absorb some (of the increase), but we have to pass some of it
on”, he said.
Unilever unveiled third-quarter profits up 13% to nearly
£1.2bn. The shares were among the FTSE 100’s biggest risers,
climbing more than 6% to £19.24.
Vodafone stores face more protests over
alleged tax avoidance
Activists plan countrywide protests over
company’s alleged tax avoidance and wider
issue of government spending cuts
Adam Gabbatt
Activists across the country are planning to shut down
Vodafone [http://tinyurl.com/5jz2r3] stores for a second
weekend in protests over the company’s alleged tax avoidance
[http://tinyurl.com/d8hxjb] and the wider issue of government
budget cuts.
Protesters say Vodafone was let off a £6bn tax bill by HM
Revenue and Customs – allegations both organisations deny
– and the company has become a “symbolic target” for protests
against the coalition government’s cuts.
Stores in at least five cities in England and Scotland are
guardian.co.uk © Guardian News and Media Limited 2007
Friday November 5 2010 06:34 GMT
expected to be shut by activists – after more than a dozen
shops were forced to close by demonstrations in 10 cities last
weekend.
The widespread protests under the banner of UK Uncut – a
loosely assembled group that urges direct action over budget
cuts – came after a small-scale demonstration against one store
10 days ago “went viral”, in the words of one activist. This
Saturday, Vodafone stores in Brighton, Bristol, Cambridge,
Glasgow and Nottingham are expected to be targeted.
“The numbers will be a lot bigger this time,” said Amy
Cox, 25, who was involved in last week’s 40-strong action in
Brighton, which shut two stores in the city, and will meet fellow
protesters on Saturday for another demonstration.
Cox said protesters would decide on a course of action
on Saturday, but it was “likely” a Vodafone store would be
targeted. The company was a symbolic target for action against
cuts.
“We have leaflets which explain how Vodafone has been tax
evading, and how that fits into the wider spiel the government
has been giving us to say all these cuts are all really necessary
– when in effect they could be sourcing some of this money
from big corporations that are managing to evade their taxes,”
she said.
Although Vodafone has been the main company targeted so
far, it is not the only organisation being used as a scapegoat by
those protesting against cutbacks.
Yesterday about 15 protesters, including some of those who
shut a Vodafone store in Glasgow for eight hours last weekend,
occupied a Royal Bank of Scotland branch in the city centre.
“It was a varied group: there were a couple of pensioners,
some housing activists, some students, environmental
activists, and then a couple of people who were banking joined
us,” said Alice Campbell, 35, a nurse in Glasgow. “It’s about
the cuts, we shouldn’t be facing them.” Most of the group had
occupied a Lloyds TSB branch three weeks ago, she added.
Vodafone was investigated by HM Revenue and Customs
over the tax it owed after a takeover of German company
Mannesmann in 2000. The mobile phone company was told
to pay £1.25bn in tax following what HMRC described as “an
intensive period of negotiation that tested the arguments of
both parties”.
Vodafone and HMRC have denied the £6bn tax liabilty figure
quoted by protesters. An HMRC spokesman said: “There is no
question of Vodafone having an outstanding tax liability of
£6bn.  That number is an urban myth.”
A statement on Vodafone’s website [http://tinyurl.com/
3aex4oe]said that the company “meets its tax obligations in the
UK” and was paying the full £1.25bn sum of tax agreed following
the HMRC investigation.
However, the allegations have persisted and led to the first
anti-Vodafone protest [http://tinyurl.com/7u5syy] a week and
a half ago, when 65 protesters entered one of the company’s
shops and staged a sit-in at one of the company’s stores, forcing
it staff to call the police and closing the store for almost six
hours.
News of the demonstration was widely shared on social
networks, and inspired a “day of action” last Saturday, when
disparate groups of individuals organised protests in various
cities.
“Basically it seemed it was taking off across the country,”
said Ellie Mae O’Hagan, 25, who organised protests in Liverpool
guardian.co.uk
Page 10 G24 Business
that shut two Vodafone stores, just two days after hearing about
the first demonstration.
“Liverpool as a city is very much rooted in politics, its
identity is defined by the struggles of working people in the face
of a government that doesn’t seem to be sympathetic to them,
and on a personal level it was just something I really wanted to
be a part of.
“The government is choosing to make these cuts, they’re
not forced to make these cuts. I think it’s important to establish
that they don’t need to happen, but I don’t think that message
is getting through at the moment.”A spokesman for Vodafone
added that stores would stay open throughout the weekend.
“At the moment we have a small number of protesters in a small
number of cities who are still protesting about something which
is incorrect,” he said.The demonstrations are spreading beyond
allegations against the company to the wider issue of budget
cuts, but protesters are clear about their immediate target.
“Vodafone should brace themselves,” O’Hagan said.
“Because we’re not done with them yet.”
Collapse of Potash bid marks Kloppers’s
third failed deal as head of BHP Billiton
• Chief executive failed to close two deals
with Rio Tinto • Potash bid ruled out by
Canadian government
Alex Hawkes
BHP Billiton [http://tinyurl.com/5cnqso] chief executive Marius
Kloppers is facing up to a third failure in the mergers and
acquisitions [http://tinyurl.com/le2rmh] market today after the
miner’s attempted hostile takeover of Potash Corporation of
Saskatchewan was rejected by the Canadian government.
The deal looked to have been dealt a possibly fatal blow
following last night’s decision from Canadian trade minister
Tony Clement that the bid was not of “net benefit” to Canada
[http://tinyurl.com/42gk38].
While BHP was vowing to fight on today and discuss what
further benefits it could bring to the table in the mandatory 30-
day discussion period that follows the announcement, Clement
himself was telling followers of his Twitter feed that the 30
day period was merely “a legal req’t b4 [the] final decision
[is] rendered.” If BHP fails to convince the government of the
benefits a deal could bring, it is unlikely to pursue any legal
challenge, according to sources close to the company.
Legal wranglings over the deal between Potash and BHP,
as well as a potential blocking bid by Russian group Phosagro,
were all understood to be going ahead regardless today, but
some analysts were focusing instead on what the Anglo-
Australian mining [http://tinyurl.com/5w5jlw] group will do
now with the debt it raised to finance its $39bn (£24bn) hostile
bid. “I think it’s clear they will have a share buyback and make
a bid for an oil and gas company. That was always the Plan B,”
said Tom Gidley-Kitchin of Charles Stanley.
If the deal collapses it will join BHP’s aborted takeover of Rio
Tinto in 2008 and the abandonment of an iron ore joint venture
with Rio last month as failures that are starting to give Kloppers
the reputation of a man who cannot close a deal.
However, analysts refused to criticise the South African.
“They were perhaps a little bit slow to employ a lobbyist
guardian.co.uk © Guardian News and Media Limited 2007
Friday November 5 2010 06:34 GMT
in Canada,” Gidley-Kitchin said, but added that Kloppers
“shouldn’t feel that [Potash] wasn’t worth trying [to buy]”.
Not everyone has entirely given up on the transaction.
Charles Gibson of Edison Investment Research said that the
deal was “probably” over, but added: “I suspect a conversation
needs to be had saying: ‘Is there a way round this?’”
Charles Kernot of Evolution Securities said he thought the
public emphasis from the Canadian trade minister on the 30-
day discussions suggested they were more than just formalities.
“The company has sufficient firepower to offer something
additional,” he said.
BHP has so far publicly offered to move Potash’s head office
from Chicago back to Saskatchewan, to keep operational
employment at current levels and make concessions on tax to
ensure the deal was tax neutral. Other private assurances are
also thought to have been given.
BSkyB and News Corp: Rupert Murdoch
and the regulators
Vince Cable has, in effect, created the first
official inquiry into power and influence
enjoyed by Murdoch’s interests
Dan Sabbagh
Rupert Murdoch [http://tinyurl.com/cts2lo] is well used to
steering News Corporation [http://tinyurl.com/b2zwra] through
political battles and controversial regulatory inquiries. The
media mogul adroitly launched Sky in 1989 from Luxembourg,
because the broadcasting regulations of the time meant that
it would have been banned in the UK. Since then the satellite
broadcaster has easily beaten off a string of attempts to force a
break-up of its stranglehold on Premier League football – and
its growth has been so rapid and relentless that Sky is already
bigger than the BBC.
However, he may have cause to rue today’s decision by Vince
Cable. The business secretary, in asking for a public interest
review of News Corp’s proposed £8bn buyout of the 61% of Sky
it does not already own, has, in effect, created the first official
inquiry into the power and influence enjoyed by Murdoch’s
newspapers [http://tinyurl.com/9ceax3] and television stations
in the UK. And unlike previous “competition” inquiries, the
public interest review is so loosely drawn that all sorts of wider,
nebulous political considerations come into play.
The essential argument is simple. Combine News Corp
and Sky and you get a company that is expected to be roughly
double the size of the next biggest player, the BBC, by the time
of the election due in 2015. Rivals are terrified: could the Times
be bundled free with a Sky News subscription? Would Sky News
gradually adopt the same tone as the Sun? And above all, is the
“super” News Corp just too big? It would, after all, be the largest
media company in the history of the country.
Decisions are now in the hands of regulators – first Ofcom,
and if the media regulator so decides (with Cable’s permission),
the Competition Commission. Only at the end does a final
decision return to the hands of politicians, but if David
Cameron’s cabinet were to overrule the regulators, a judicial
review would follow as soon as the first lawyer can race down to
the high court.
Don’t rule out, either, attempts to force other remedies.
guardian.co.uk
Page 11 G24 Business Friday November 5 2010 06:34 GMT

There are already suggestions from Brussels (where News

Corp must also persuade regulators to allow the merger) that
Murdoch’s team have proposed selling off Sky News to allay
concerns about media dominance in the UK. Formally, his
company says it is not a suggestion that it recognises; that Sky
News is well integrated into the rest of Sky. But you don’t have
to doubt the denials to believe that the regulators might insist
on some sort of forced disposals – if not Sky News, perhaps the
Times and Sunday Times.
Murdoch, though, has bet some or all of his company again
and again – as it has grown from a single newspaper in Adelaide
to a media group that spans the Fox film studio in Hollywood
to Star TV in Hong Kong. And of course, he has lasted far longer
than any of the regulators, competitors or politicians who have
ranged themselves against him. After all, one day, quite soon,
Vince Cable could be reshuffled in favour of a Conservative
minister.

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