Goldman, Bain settle in LBO collusion case

  • Goldman to pay $67 million, Bain $54 million
  • Five firms remain as defendants in the case
  • Eight deals at issue in conspiracy charges

The preliminary settlement with former shareholders of companies acquired in leveraged buyouts from 2003 to 2007 was disclosed in papers filed on June 11 in Boston federal court, and requires approval by U.S. District Judge William Young.

Goldman and Bain did not admit wrongdoing in agreeing to settle. Five defendants remain: Blackstone Group, Carlyle Group, Kohlberg Kravis Roberts & Co, Silver Lake Partners and TPG Capital Management. A trial is set for Nov. 3.

The December 2007 lawsuit, which has shined a light on how Wall Street operates behind the scenes, accused private equity firms of running an “overarching” conspiracy not to outbid, or “jump,” each other after transactions were announced.

Goldman was a defendant because of buyouts involving its private equity arm.

Eight buyouts totaling more than $100 billion were part of the case: movie theater chain AMC Entertainment Inc, food service company Aramark Corp, chipmaker Freescale Semiconductor Inc, casino operator Harrah’s Entertainment Inc, hospital chain HCA Inc, pipeline operator Kinder Morgan Inc, software maker SunGard Data Systems Inc and power company TXU Corp.

TXU later changed its name to Energy Future Holdings.

“The plaintiffs saw an LBO market that was not working competitively, and shareholders were not receiving competitive prices,” said Christopher Burke, a partner at Scott & Scott representing the plaintiffs, in an interview.

He added: “It is harder to settle multi-defendant lawsuits in one fell swoop, and this may portend breaking the logjam.”

Goldman spokeswoman Andrea Raphael said the bank is pleased to settle. Bain spokesman Ernesto Anguilla in a statement said it was best to “put this matter behind us in light of the costs and distraction of six years of litigation.”

Blackstone and Carlyle declined to comment. A KKR spokeswoman said the lawsuit lacks merit. A TPG spokesman said that firm disputes the allegations and expects to prevail at a trial. Silver Lake did not respond to a request for comment.

The lawsuit originally accused the defendants and other firms of conspiring to deflate prices in 27 buyouts worth about a quarter-trillion dollars.

Another federal judge in March 2013 found a lack of evidence for that claim, and narrowed focus to jumping.

Much of the case was has been built on emails.

In one, Blackstone President Hamilton “Tony” James emailed KKR co-founder George Roberts that he would “much rather work with you guys than against you,” and that “in opposition we can cost each other a lot of money.”

The plaintiffs’ lawyers may seek fees of up to 27.5 percent of the settlement funds, plus up to $10 million for costs. Goldman and Bain agreed to help the plaintiffs authenticate documents that could be used at trial.

The case is Dahl et al v. Bain Capital Partners LLC et al, U.S. District Court, District of Massachusetts, No. 07-12388.

Jonathan Stempel is a correspondent for Reuters in New York.

Photo of a judge’s gavel by Chip East for Thomson Reuters. All rights reserved.