Goldman Sachs is not prohibiting club deals in the $10 billion auction for General Electric’s plastics unit. Moreover, it could care less about the sleepy Department of Justice “inquiry” into private equity collusion.
Forgive my declaratives, but something needed to be said after the Wall Street Journal incorrectly published the following in yesterday’s edition (sorry for the delayed reaction, but it took me a while to catch my breath):
“General Electric Co. has asked for bids on its plastics business, valued at as much as $10 billion, in an auction that appears to reflect new concerns from the Justice Department about the lack of competition among possible private-equity buyers. GE has told a handful of private-equity buyout firms contacted about the possible plastics-unit sale that they face restrictions on their ability to team up with other private-equity bidders, according to people familiar with the sale effort. Although the exact nature of the restrictions aren’t known, one person familiar with the auction said firms contacted can’t call other buyout funds about teaming up.”
Ok, back to reality: Goldman Sachs has told four firms – Apollo Management, Bain Capital, Blackstone Group and Kohlberg, Kravis Roberts & Co. – that they may not team up with one another. They are free to form bidding consortia with any other private equity firms (Carlyle, Madison Dearborn, TH Lee, etc.), so long as they first get approval to share confidential documents with potential partners. This is standard operating procedure for most high-profile Goldman Sachs auctions, and has absolutely nothing to do with the Department of Justice. I don’t know if the WSJ writers were fed some bad information, or simply succumb to standard journalistic bloodlust. Either way, they botched this one.
Goldman Sachs is simply trying to promote competition for its client, by precluding the most likely bidders from teaming up. This might sound a bit anti-free market, but it’s far less dramatic than prior Goldman-run auctions in which the bank has taken an active hand in actually forming the competing consortia. It did so long before those infamous DoJ letters were penned, and has done so since.
Any notion that this move reflects opposition to club deals is simply false. In fact, there is still a possibility that some of the aforementioned four firms could work together. KKR, for example, could ultimately tell Goldman that it wants in, but only feels comfortable doing the deal with Apollo (for reasons X, Y and Z). Goldman can always demure, but might approve if it already has alternate bids led by Bain and Blackstone.
In other words, business as usual. And I don’t mean collusion.