The last time we checked in with the “club deal” collusion scandal rocking the private equity industry, a Boston Judge had ordered the firms involved to refile documents, as the ones that they had submitted to the Court had too many redactions.Well now the new documents are in, and without the redactions, they are embarrassing.
Here’s the case: Shareholders have accused a bunch of private equity titans like KKR, Blackstone, Bain Capital and more, of colluding to keep the prices of take-over target companies down, and agreeing on who would buy what. The prosecution is alleging that these firms engaged in bid-rigging, or made “club deals,” to eliminate good old fashioned competition.
Peter Lattman and Eric Lichtbaum The New York Times have published some bits of these documents for us to check out, and they show that the heads of these private equity firms had a warm relationship, to say the least.
Take, for example, this 2006 exchange between KKR head Henry Kravis and Blackstone president Hamilton E. James. The firms were competing over a tech company called Freescale Semiconductor, and Blackstone had outbid KKR.
That’s when James e-mailed this note to his colleagues about a call he’d gotten from Kravis (from the NYT):
“Henry Kravis just called to say congratulations and that they were standing down because he had told me before they would not jump a signed deal of ours,” Mr. James wrote.
Two days later, Mr. James sent an e-mail to Mr. Kravis’s cousin and co-founder, George R. Roberts. “We would much rather work with you guys than against you,” Mr. James wrote. “Together we can be unstoppable but in opposition we can cost each other a lot of money.”
“Agreed,” responded Mr. Roberts.
And there’s this too. In 2006 Bain, KKR, and Merrill Lynch did the biggest leveraged buy-out deal of all time when they bought hospital chain HCA (it cost $32 billion). Before they paid up, though, they allegedly asked everyone else in the industry to stand down.
K.K.R. expressly asked its competitors to “step down on HCA” and not bid on the company, according to an e-mail that was unsealed and written by Daniel Akerson, then a partner at Carlyle and now the chief executive of General Motors. The complaint includes several other e-mails explaining the lack of competition in the bidding for HCA.
Two colleagues at the private equity firm TPG e-mailed each other about the firm’s reasons for deciding to not compete for HCA, according to the lawsuit.
“All we can do is do [u]nto others as we want them to do unto us,” Jonathan Coslet, a TPG executive, wrote. “It will pay off in the long run even though it feels bad in the short run.”
Attorneys for the defence insist that their clients are innocent of all charges, and that the industry is highly competitive.
Also, NYT points out that Presidential candidate and former Bain executive Mitt Romney is not mentioned in any of these documents, though shareholders insist that he “reaped millions of dollars from profits that may have been illegally inflated by underpriced acquisitions.”
Let’s see how this goes.