M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, October 10, 2012

Clubbing back in the headlines

Thanks to a motion by the NY Times, a shareholder lawsuit against a number of private equity firms is back in the headlines.  "Clubbing" is the alleged practice of competitor private equity firms colluding rather than competing to take companies private at price lower than they might have gone private had their been vigorous competition.  The DOJ gave it a look a while ago and walked away from their investigation.  Shareholders from firms sold to private equity bidders have been a little more patient.

Now, the largely unredacted 220 page amended complaint in Dahl v Bain Capital, et al is available.  And does it make for some good reading.  Here's a taste: 

6. The $31 billion buyout of HCA illustrates how the operation of Defendants' conspiracy. On July 24, 2006, at the height of the conspiracy, a consortium comprised of Defendants KKR and Bain, along with co-conspirator Merrill Lynch, announced their plan to acquire HCA. To ensure the deal was consummated, KKR expressly requested "the industry to step down On HCA."9

7. The other private equity firms followed KKR's directive and agreed not to bid for HCA. Immediately after the announcement and during the 50-day "'go shop"' period when other Defendants had the opportunity to submit competing bids for HCA, James Attwood, a managing director at Carlyle, informed Alexander N avab, a managing director at KKR, that Carlyle would not compete for HCA.10 Likewise, Defendants Blackstone, TPG and Goldman Sachs informed KKR that they would not compete for HCA. Defendants adhered to their conspiracy not to compete on large LBOs, even though they all viewed HCA as an attractive asset. Blackstone went so far as to state that KKR and Bain's purchase was "highway robbery."11 Nevertheless, it did not compete for HCA.

8. HCA illustrates that Defendants would forego competing for a potentially lucrative deal- even one where the purchase price was "highway robbery"- to reap the long term financial gains from collusion. Two TPG senior executives discussing TPG' s decision not to compete against KKR and Bain for HCA admit this fact: "All we can do is do [u]nto others as we want them to do unto us . .. it will pay off in the long run even though it feels bad in the short run. "12

Hmm.  Kind of takes the wind out of the sails of a go-shop provision when you ask everyone else in the industry not to make a bid.  I'm going to take some time to work through the rest of this, but it certainly promises to be full of dirty laundry.



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