PE firms face class-action suit

Last week, 13 private equity firms were accused of violating federal anti-trust laws, in a class-action lawsuit brought by shareholders in various public companies that have been, or soon will be, bought out.

The plaintiffs hold, or held, stock in Harrah’s, HCA and Univision, while the private equity firms include Apollo Management, Bain Capital, Blackstone Group, The Carlyle Group, Clayton, Dubilier & Rice, KKR, Madison Dearborn Partners, Merrill Lynch, Providence Equity Partners, Silver Lake Partners, Texas Pacific Group, Thomas H. Lee Partners and Warburg Pincus. It also is possible that various investment banks and corporate directors could be added to the defendant roster, but no final decisions have yet been made.

The suit alleges that the LBO firms no longer compete with one another for deals. Instead, they club up to pre-emptively shrink the buyer pool, and then drain it all together by making quid pro quo agreements, such as “We won’t bid against you on this deal, if you don’t bid against us on that deal.”

The 18-page complaint does not include any evidence of such arrangements, and plaintiff attorney Greg Nespole declined to comment. Legal sources suggest that Nespole’s firm—Wolf Haldenstein Adler Freeman & Herz—is simply betting that the ongoing Department of Justice inquiry will turn up some wrongdoing, and that they then would have the inside track on subsequent class-action litigation.

Most of the defendants contacted for this story declined to comment, although Carlyle Group’s Chris Ullman said: “This sets a new standard for frivolous lawsuits and we will vigorously contest it.” —Dan Primack