Reuters – PE Firms Urge Judge to Dismiss Bid-Rigging Case

The world’s biggest private equity firms, including Blackstone Group and Kohlberg Kravis Roberts, told a judge on Tuesday they competed fairly and feverishly for multibillion-dollar takeovers even though some investors of the acquired businesses argue that they colluded to drive down prices and split up deals, Reuters wrote. In what may become a landmark case for the private equity industry, the 11 defendants, including other top tier firms Carlyle Group, Goldman Sachs and TPG Capital, argued in federal court in Boston that the plaintiffs have shown no evidence that the firms conspired to fix prices on $250 billion worth of leveraged buyout deals between 2003 and 2007.

(Reuters) – The world’s biggest private equity firms, including Blackstone Group and Kohlberg Kravis Roberts, told a judge on Tuesday they competed fairly and feverishly for multibillion-dollar takeovers even though some investors of the acquired businesses argue that they colluded to drive down prices and split up deals.

In what may become a landmark case for the private equity industry, the 11 defendants, including other top tier firms Carlyle Group, Goldman Sachs and TPG Capital, argued in federal court in Boston that the plaintiffs have shown no evidence that the firms conspired to fix prices on $250 billion worth of leveraged buyout deals between 2003 and 2007.

Citing emails that show disappointment at having lost deals and surprise at how high some deal prices went, Joseph Tringali, arguing for the private equity firms, said “these are the words of competitors, not conspirators.”

Tringali and other lawyers for the private equity firms repeated that there was no pattern to who won and lost these deals. They argued that the firms being acquired often selected the winning bidders, making it nearly impossible for their clients to rig the process in advance.

The defense has tried unsuccessfully to get the case, first filed in 2007, dismissed 10 times before. Now it is going for number 11 before U.S. District Judge Edward Harrington.

But plaintiffs have argued that the Wall Street firms cleverly cooperated to drive down prices on some of the biggest and most lucrative leveraged buyouts (LBOs) in history, including Freescale Semiconductor, SunGard Data Systems and HCA Holdings. They are seeking a jury trial and monetary damages.

In six hours of arguments, the judge, who has long experience with criminal cases, but less expertise in antitrust cases, frequently interrupted both sides asking questions and noting problems he has with the case.

The plaintiffs argued there was an overarching conspiracy between the defendants that touched on all of the 27 LBOs they referenced. They have said that the prices on the deals were often some 10 percent below what they should have been, hurting institutional investors and individual shareholders alike.

For example, after Blackstone put up an $18 billion bid for Freescale Seminconductor, topping rival KKR, Blackstone President Hamilton “Tony” James emailed KKR co-founder George Roberts.

“We would much rather work with you guys than against you. Together we can be unstoppable, but in opposition we can cost each other a lot of money,” James wrote in the email that was presented in court.

At one point plaintiff lawyer Christopher Burke put up a slide that he said mapped out how the 11 firms were related to the 27 deals. Staring at the jumble of red lines, Judge Harrington held his head in his hands.

“My problem with this case is that procedurally it is very difficult,” Harrington said, asking Burke how damages would be allocated amongst the private equity firms.

“They are all on the hook,” Burke replied.

Harrington also heard arguments about the HCA Holdings deal where KKR and Bain paid $32 billion, beating out Blackstone, TPG, Goldman and Carlyle.

“I came in here thinking this was a slam dunk to go to the jury,” Harrington said adding, “But the defendants have made their arguments.”

Arguments will continue on Wednesday.

Harrington has not given any indication of when he may rule.

The case is Dahl v. Bain Capital et al, U.S. District Cout, District of Massachusetts, No 07-12388.