Blackstone Group LP (BX), Apollo Global Management LLC (APO) and other private-equity firms failed to persuade a judge to dismiss an antitrust lawsuit that accuses them of suppressing competition for leveraged buyouts.
U.S. District Judge Edward Harrington in Boston yesterday rejected a defense request to throw out the suit. Defendants also include Goldman Sachs Group Inc. (GS), Bain Capital Partners LLC, KKR & Co. and Carlyle Group LP. (CG) At the same time, the judge narrowed the basis on which the case could proceed.
Shareholders of companies that were acquired claim the firms conspired to allocate the market for large leveraged buyouts, suppressing prices and depriving investors of billions of dollars. The lawsuit stems from the biggest deals of the leveraged buyout boom before the financial crisis, including HCA, Clear Channel Communications and TXU, now known as Energy Future Holdings Corp.
The plaintiffs claimed that prices were held down when the private-equity firms formed groups to take companies private. The firms agreed not to compete for exclusive deals and allocated transactions among themselves, according to the complaint.
In his ruling, Harrington said the case could only proceed based on an allegation of an overarching conspiracy among the firms to refrain from “jumping” each other’s deals.
“The evidence suggests that the practice was not the result of mere independent conduct,” the judge said.
Still, the judge said that the existence of partnerships among the firms is “just as consistent, if not more consistent, with a widely accepted and independent business strategy, as it is with a vast price-fixing conspiracy.”
“There is largely no indication that all the transactions were, in turn, connected to a market-wide agreement,” the judge wrote. “Rather the evidence shows a kaleidoscope of interactions among an ever-rotating, overlapping cast of defendants.”
Christopher Burke of Scott & Scott LLP, an attorney for the plaintiffs, said claims that the defendants acted anticompetitively will go forward even though the judge narrowed the case.
“This remains a multibillion-dollar case and the plaintiffs live to fight on,” he said in an e-mail. “So this is a good day for us.”
The private-equity firms argued at a hearing in December that the plaintiffs hadn’t provided evidence of an overarching conspiracy to rig bids. The transactions represented legitimate practices of the mergers-and-acquisitions business, they said.
“Such a sprawling conspiracy claimed in the complaint is not possible,” Joseph Tringali, an attorney with Simpson Thacher & Bartlett LLP, told the judge. “We don’t control the process. The target company in a bid situation often decides who they are going to allow to bid.”
Harrington granted JPMorgan Chase & Co. (JPM)’s motion for summary judgment. Other defendants may file new summary-judgment motions over the narrowed conspiracy claim, he said.
“We are pleased the court saw through the absurdity of a ‘vast overarching conspiracy’ involving 27 deals and will allow us and the other defendants to demonstrate to the court that even the modified claims should not go to a jury,” Christine Anderson, a Blackstone spokeswoman, said in an e-mail.
Owen Blicksilver, a spokesman for defendant TPG, said the company was pleased that the court had limited the scope of the case. KKR’s Kristi Huller said the case “is without merit, and we will continue to contest it.”
“We are pleased that the court significantly narrowed the claims, and we intend to vigorously defend the remaining claims,” Andrea Raphael of Goldman Sachs said in an e-mail.
Representatives of the other defendant firms couldn’t be reached for comment or declined to comment. Providence Equity Partners, Silver Lake Technology Management and Thomas H. Lee Partners are also defendants.
The case is Dahl v. Bain Capital Partners, 07-12388, U.S. District Court, District of Massachusetts (Boston).