The potential for a renaissance in club deals in 2009 took a hit last month when a U.S. District Court in Boston denied a motion to dismiss a class-action complaint of conspiracy among prominent buyout firms.
Law firm Paul, Weiss, Rifkind, Wharton & Garrison LP issued a memorandum to its clients following the ruling, calling the decision a “significant” one for private equity firms and corporate acquisition participants because “it does suggest that coordinated bidding practices may support an anti-trust claim, especially when they occur across a series of transactions involving a number of the same firms.”
The decision could inject new life into the collusion debate, which heated up in October 2006 when the Justice Department made some initial inquiries, but has lost steam in the past two years as the practice became less prominent in the wake of the government’s curiosity. The case now enters the first stage of discovery, which will involve nine transactions specified in the original complaint. Once that’s concluded, the court will determine if discovery related to additional transactions is warranted. The first stage is to be concluded within a year of the Dec. 15 order.
Dahl v. Bain Capital et al. centers on the $17.6 billion take-private of Freescale Semiconductor in December 2006 by a consortium of
In its decision, the court rejected the defendants’ argument that the plaintiffs, ex-Freescale Semiconductor shareholders, couldn’t file suit because the Securities and Exchange Commission supervises such transactions, pre-empting anti-trust laws. It noted that a previous legal precedent in this area established that “pre-emption should be used minimally in order to allow simultaneous operation of the securities and anti-trust laws as much as possible.”
The court also found that the circumstances of the case “plausibly suggest” an illegal agreement could have existed. The main evidence: the fact that the same firms appeared in so many club deals. Examples cited included the joint purchase of Michael’s Stores by Bain Capital and Blackstone for more than $6 billion in a deal agreed upon in June 2006 and that same pair’s presence in the consortium that agreed to purchase SunGard Data Systems for $11.3 billion in March 2005.
Andrew Finch, a counsel in the litigation department at Paul, Weiss, Rifkind, Wharton & Garrison, stressed to Buyouts that how the case plays out shouldn’t impact individual club deals. The main takeaway from his perspective is that firms looking to avoid getting caught up in this type of litigation should look to past dealings for guidance. “If they’ve partnered with the same firms on a number of deals in the past, they could be vulnerable,” he said. “What’s important is to think carefully about patterns. That’s what the court is pointing to here.”
Interestingly enough, the first big deal of 2009 is a club deal, the proposed acquisition of failed mortgage lender IndyMac by a group including financial services specialist
The thrift holding company leading the deal is led by Steven Mnuchin, an alumnus of Goldman Sachs who is now chairman and co-CEO of
The transaction, which is expected to close in the first quarter, values IndyMac at $13.9 billion, according to the Federal Deposit Insurance Corp.