US Judge Allows Private-Equity Collusion Lawsuit to Proceed
A federal judge narrowed a closely watched lawsuit accusing some of the world's largest private equity firms of colluding to drive down prices on companies they sought to buy, costing shareholders of the acquired businesses billions of dollars.
Despite allowing part of the main claim to go forward, U.S. District Judge Edward Harrington in Boston said investors who brought the lawsuit fell short of demonstrating a wider "overarching" conspiracy to drive down takeover prices.
"While some groups of transactions and defendants can be connected by 'quid pro quo' arrangements, correspondence, or prior working relationships, there is little evidence in the record suggesting that any single interaction was the result of a larger scheme," Harrington wrote on Wednesday.
The civil antitrust lawsuit was brought in 2007 against 11 defendants, including prominent private equity firms such as Bain Capital Partners, Blackstone Group, Carlyle Group, Goldman Sachs Group's private-equity arm, KKR, and TPG Capital Management.
JPMorgan Chase, which provided financing and advice on some transactions, was also a defendant. Twenty-seven transactions were challenged, including 19 leveraged buyouts, six non-leveraged buyouts, and two that were never conducted.
The plaintiffs were shareholders in the once publicly traded companies that were bought by the firms between 2003 and 2007. They claimed to have lost billions of dollars because of the firms' conspiracy to artificially deflate takeover prices.
Harrington said the investors may pursue a claim that the firms agreed not to outbid each other after transactions were announced, a practice known as "jumping." But he also gave the defendants a fresh chance to seek dismissal of this claim.
The judge also allowed investors to pursue a claim alleging a conspiracy among some defends to rig bids and not compete for hospital chain HCA, the subject of a $32.1 billion leveraged buyout in 2006 by Bain, KKR, and others.
Claims against JPMorgan were also dismissed, because the evidence did not show that the largest U.S. bank bid on target companies or suggested its participation in the "narrowed overarching conspiracy," Harrington wrote.
"From the plaintiffs' perspective, this was a good day," said Christopher Burke, a partner at Scott & Scott representing the shareholders, in a phone interview. "This remains a multibillion-dollar case, and that is going forward. What was written by some defendants in their papers, and by some of the press, that what we had was 'thin gruel' has been dispelled."
Joseph Tringali, a partner at Simpson, Thacher & Bartlett who argued on behalf of the defendants, declined to comment.
Much of the shareholders' case was built on emails between principals at the private equity firms that they said reflected an implicit understanding to keep takeover prices low, perhaps 10 percent below what they should have been.
In one example, after Blackstone topped KKR with an $18 billion bid for technology company Freescale Semiconductor, Blackstone President Hamilton "Tony" James emailed KKR co-founder George Roberts.
"We would much rather work with you guys than against you," James wrote. "Together we can be unstoppable, but in opposition we can cost each other a lot of money."
Among the other buyouts that were the subject of the lawsuit were casino operator Caesars Entertainment, and arts and crafts retailer Michael's Stores.
Mitt Romney, the 2012 Republican presidential candidate and a Bain founder, left that firm in 1999 before the transactions in question, and was not a defendant.
The case is Dahl et al v. Bain Capital Partners LLC et al, U.S. District Court, District of Massachusetts, No. 07-12388.