Collusion Settlement Could Cost P.E. Firms More Than $1B

Jan 3 2014 | 11:46am ET

Shareholders of eight companies acquired by 11 major private equity firms are ready to hold the p.e. firms' feet to the fire in settlement talks.

The investors have accused the firms, including Blackstone Group, Bain Capital, Carlyle Group, Kohlberg Kravis Roberts and TPG Capital of collusion, working together to drive down the prices they paid for companies. Last month, a judge scheduled the trial for Nov. 3, and in March, the plaintiffs are expected to seek class-action status.

A court in March refused the firms' 10th dismissal bid, ruling that there was simply too much evidence of improper behavior to sink the lawsuit, which was initially filed in 2007.

If the firms want to avoid an embarrassing trial, however, it's going to cost them big. According to the New York Post, the shareholders will demand in excess of $1 billion to go away. "I think there was a time the plaintiffs would have settled for $1 billion, but that time had passed," a source told the tabloid.

The p.e. firms are not yet ready to settle, although they told U.S. District Judge William Young last month that they had employed a private mediator and spoken several times. There is no indication that the sides are close to a deal.

The lawsuit covers eight buyouts worth $170 billion. The plaintiffs allege that the firms agreed not to engage in bidding wars between 2004 and 2008, citing e-mails between top executives at the time. In one, Blackstone Group President Hamilton James wrote that KKR's Henry Kravis had said "they would not jump a signed deal of ours." James also allegedly wrote to KKR's George Roberts, "Together we can be unstoppable but in opposition we can cost each other a lot of money."

Roberts said he "agreed."

At least year's dismissal hearing, U.S. District Judge Edward Harrington also expressed concern with KKR's request that rivals "step down" on a buyout.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...