The defendants, who also include Blackstone Group LP (BX), Carlyle Group, KKR & Co., Apollo Global Management LLC (APO) and JPMorgan Chase & Co. (JPM), today urged U.S. District Judge Edward Harrington in Boston to dismiss the lawsuit by shareholders in acquired companies.
Individuals and pension funds that held shares in companies including Freescale Semiconductor Ltd. (FSL), Neiman Marcus Group Inc. and HCA Holdings Inc. (HCA) sued in 2007 and 2008, claiming private- equity firms conspired to rig bids and suppress prices for leveraged buyouts, depriving shareholders of billions of dollars.
Joseph Tringali, an attorney at Simpson Thacher & Bartlett LLP who argued for the defendants, said the sprawling conspiracy claimed in the lawsuit, covering $250 billion worth of transactions, isn’t possible because target companies controlled the process.
“They decided to swing for the fences and go big with the conspiracy they’ve claimed here,” said Tringali, who cited communications from suitors who lost out on deals or quit bidding. “These are the words of competitors, not conspirators,” he said.
In October, an amended complaint was unsealed, disclosing e-mails among private-equity firm executives about potential buyouts. In an e-mail referring to Freescale, Blackstone Group President Tony James told KKR co-founder George Roberts, “Together we can be unstoppable but in opposition we can cost each other a lot of money.”
The lawsuit is a “complete fabrication,” James said later in an earnings call.
There is a “mountain of evidence” of collusion among the firms, Christopher Burke, an attorney for the plaintiffs at the law firm Scott & Scott, said in court.
“This conspiracy has been so substantiated by the evidence you can actually draw a map,” he told the judge. “We can draw all of the defendants together.”
Firms are accused of forming bidding clubs that suppressed prices and allocating deals among themselves.
Plaintiff Kirk Dahl said he and others in the proposed class of investors owned shares in Freescale in 2006 when the chipmaker announced a buyout by firms including Carlyle and Blackstone for $17.5 billion.
HCA was bought by companies including KKR and Bain for $32.1 billion. The plaintiffs include the police and fire department pension funds of Detroit and Omaha, Nebraska.
“If true, we have some pretty serious violations of the antitrust laws,” Darren Bush, a professor of antitrust law at the University of Houston Law Center, said in an interview. “If this conduct is really going on and it’s really problematic, it ought to have a trial.”
Tringali, arguing on behalf of buyout firms, defended the practice of bidding groups.
“The mere fact you have three bidding groups as opposed to three or six individual bidders is meaningless,” he said. “Three bidding groups are still bidding against each other and the price is going up.”
The deals in question occurred from 2003 to 2007. Two lawsuits were consolidated by the judge, who denied a request by the defendants to move the case to federal court in New York.
The judge in 2010 allowed a second phase of fact-gathering for eight additional transactions, involving Loews Corp. (L), NXP Semiconductor NV (NXPI), Vivendi SA (VIV), Community Health Systems Inc. (CYH), Nalco Holding Co., Cablecom Holdings, Susquehanna Media and Warner Music Group Corp. Later that year, the judge allowed the plaintiffs to add more deals and extended fact-gathering to April 2012. The lawsuit now lists 19 buyouts and eight related transactions.
The defendants also include Providence Equity Partners Inc., Thomas H. Lee Partners LP, Silver Lake Technology Management and TPG Capital.
The judge asked why the plaintiffs claimed one large conspiracy instead of several.
“It’s causing me an awful lot of problems as how to intellectually grasp it,” Harrington said. “It’s just almost overwhelming. Because it comes down to this: Is there one overarching conspiracy, or is it less?”
The cases are Dahl v. Bain Capital, 08-10254, and Klein v. Bain Capital, 07-12388, U.S. District Court, District of Massachusetts (Boston).
To contact the reporters on this story: Don Jeffrey in New York at email@example.com; David McLaughlin in New York at firstname.lastname@example.org; Janelle Lawrence in Boston at email@example.com.