Legal Battle Brewing Over Quick Flip

Castle Harlan Inc. vowed July 15 to fight any complaints against it regarding what could be the quickest quick flip in private equity history, Buyouts reported.

On July 6 the New York-based buyout firm, co-founded by former Donaldson Lufkin & Jenrette Inc. CEO John Castle, bought Norcast Wear Solutions, a supplier of mill liners and other products to the mining industry, from Pala Investments for $190 million. The next day, Castle Harlan agreed to sell the company to Bradken Ltd—an Australian company with which Castle Harlan has a long relationship—for A$202 million ($217 million), as Buyouts first reported. Bradken closed the deal July 11, according to Capital IQ.

The deal begged several questions. First, why wouldn’t Pala sell to Bradken to begin with? And how did Bradken and Castle Harlan orchestrate their deal so fast?

Now Pala Investments has hired the law firms Allens Arthur Robinson in Australia and Chadbourne & Park LLP in the United States to find out, a spokesman for the firm confirmed to Buyouts after published reports.

Specifically, the law firms are investigating if there could have been a breach of confidentiality agreements.

Castle Harlan declined to comment on the legal preparations beyond a prepared statement sent in an e-mail: “We are highly confident of our legal position and would vigorously defend any action taken against us.”

Meanwhile, Buyouts was getting conflicting accounts about Bradken’s involvement in the initial deal process between Pala and Castle Harlan. One source familiar with that process, which was run by UBS Securities, told Buyouts that Bradken was intentionally left out of the auction because it is a competitor to Norcast and the latter did not want to divulge sensitive business information. But another source close to the deal said that is not true. In fact, Bradken was included but did not pursue the deal, this source said.

Castle Harlan and Bradken have had a decade-long relationship. CHAMP Private Equity, Castle Harlan’s Australian affiliate, bought Bradken in 2001 for $94.2 million and took it public in 2004, as Buyouts previously reported. In 2006, Castle Harlan bought AmeriCast Technologies, a designer and manufacturer of steel castings, for $110 million, with Bradken taking a 19 percent minority stake. Less than two years later, Bradken bought the company for $288 million. The firm earned about 3x its investment in AmeriCast, according to a 2010 Buyouts profile of Castle Harlan.

“In the last ten years, Castle Harlan and our Australian affiliate CHAMP have successfully partnered with corporate co-investors many times,” Howard D. Morgan, co-president of Castle Harlan, said in a prepared statement on July 7. “In several instances the corporate partner decided to own the business outright, and we at Castle Harlan saw immediate value-added from the partner and the possibility of a long term strategic fit.”

Bernard Vaughan is a Senior Editor at Buyouts Magazine. Follow his tweets @BVaughanReuters.