BOSTON — A federal judge yesterday sharply questioned whether shareholders accusing private-equity firms of bid-rigging had enough evidence to proceed with most of their lawsuit.
Judge Edward Harrington told lawyers for the investors that they have to show there was a conspiracy to drive down prices on dozens of corporate takeovers at issue in the suit, including the acquisition of Neiman Marcus, Toys “R” Us, Michaels Stores and Univision.
“There has to be something more than working together,” Harrington said. “You have to show there is a conspiracy.”
The suit against Bain Capital, Blackstone Group, KKR and other PE titans claims in Count One the firms colluded to artificially lower prices on more than two dozen buyouts, costing shareholders in those companies billions of dollars.
The defendants are asking the judge to dismiss the allegations. Harrington is expected to rule within the next few weeks on the defendants’ request to toss the case after the hearing concludes today.
Yesterday, the defense gave several instances in which partners at PE firms expressed disappointment after losing out on deals, according to internal e-mails.
“If someone expressed displeasure, isn’t that an issue?” Harrington asked the plaintiffs.
The judge suggested that the strongest part of the suit, contained in a second count, involved the $32 billion buyout in 2006 of hospital chain HCA by Bain, KKR and others.
Former Carlyle Group director Daniel Akerson wrote in an internal e-mail that KKR had “asked the industry to step down on HCA” and not bid.
In addition, plaintiffs showed that Goldman Sachs had sent the defendants a 40-page report valuing HCA at $59 a share, while Bain and KKR proposed to pay just $51.
“If we had 27 conspiracies like that, this would be an easy case,” Harrington said.
If the HCA count stands, not all the firms would be on the hook for potential damages.
KKR and Bain, after buying HCA back in 2006, reached a settlement with HCA shareholders shielding them from further damages. Blackstone, Carlyle and TPG Capital, however, which also allegedly conspired in the HCA deal, can still be sued.