Following a request from the New York Times, a Federal Judge in the District of Massachusetts recently unsealed the complaint in a lawsuit against 11 private equity firms alleging a market allocation and bid-rigging conspiracy in violation of Section 1 of the Sherman Act. The complaint concerns 27 private equity company purchases from 2003-2007, and alleges that the private equity firms “agreed to work together to allocate deal outcomes and purchase the target companies at artificially suppressed prices.” The class-action complaint was brought on behalf of shareholders of the target companies.
The firms named as defendants in the lawsuit include Blackstone Group, Kohlberg Kravis Roberts, Bain Capital, and Carlyle Group. The alleged conspiratorial transactions include the purchases of some of the most well known names in American commerce, including Toys R Us, Warner Music, Neiman Marcus, and Clear Chanel.
The complaint alleges both explicit agreements in certain instances and tacit agreements in others. The defendant firms “agreed to certain rules and conduct, often referred to as ‘club etiquette’ and ‘professional courtesy,’” according to the complaint. The firms also allegedly formed bidding clubs, “through which they joined together to take target companies private at a lower price than would have prevailed had they vigorously competed.” Additionally, these clubs allowed defendants to allocate transactions, enforce the agreements, and ensure that “losers were paid back for adhering to the conspiracy.” Representatives from various private equity firms have vigorously denied the claims.
While much of this information was already public, the recent decision by the court allowed for the publishing of previously redacted emails included in the complaint as evidence of the alleged agreements. The emails include discussions between executives such as“[w]e would much rather work with you guys than against you.” There was also a conversation between two TPG executives who discussed their reasoning for not competing with HCA on a deal: “All we can do is do unto others as we want them to do unto us.”