Private Equity Firms Hit With Collusion Lawsuit

Sep 14 2012 | 12:16pm ET

Shareholders of companies bought out by private equity firms over the past decade are suing some of those firms, alleging they conspired to keep prices down.

According to documents made public after The New York Times sought them, investors have accused 11 of the world's biggest buyout shops of bid-rigging on 19 deals between 2003 and 2007. The lawsuit, against Bain Capital, Goldman Sachs and the Blackstone Group, calls that period the "Conspiratorial Era."

The lawsuit alleges that private equity firms would agree not to bid on companies sought by competitors on the understanding that they'd be brought into future deals. In one e-mail cited by the complainants, Texas Pacific Group executives said it had decided against bidding for hospital chain HCA in 2006—HCA went to Bain for $32.1 billion, its largest-ever deal—because "our relationship with them, [Kohlberg Kravis Roberts] and Bain, was more important."

The shareholders suing the private equity firms allege that backroom "club deals" such as that depressed share prices and cost them billions. Other documents allegedly show that other p.e. firms also agreed to "stand down" on HCA.

The lawsuit also questions the legality of the buyouts of Harrah's Entertainment, Michaels Stores, Neiman Marcus, the Loews and AMC movie theater chains, Toys "R" Us and Univision. On Harrah's, the complaint alleges, "Blackstone's quid pro quo relationship with TPG and Apollo [Global Management] prevented it from submitting a competing bid." In another deal, KKR, Bain and Silver Lake Partners are accused of joining forces to buy Philips' seminconductor business even after Philips demanded Bain bid separately.

"Disregarding Philips' demand that they remain competitors, Bain and KKR and Silver Lake continued to collude and before final bids were to be submitted, cemented a secret deal whereby Bain would permit KKR and Silver Lake to submit the winning bid and then invite Bain into its deal on equal terms."

According to the Times, lawyers for the p.e. firms have said the deals were routine and not anticompetitive, although they admit there are more embarrassing e-mails under seal.

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