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From Securities Regulation Daily, August 7, 2014

Antitrust suit over PE firms’ LBO role said to reap $325 million in new settlement

By Mark S. Nelson, J.D.

Lawyers representing class action plaintiffs in a suit claiming that several private equity firms engaged in anticompetitive conduct in the leveraged buyout (LBO) market say they have reached a deal to settle their case against three more firms. The most recent court filing seeking the court’s preliminary approval calls for Blackstone Group L.P. (Blackstone), Kohlberg Kravis Roberts & Co. L.P. (KKR), and TPG Capital, L.P. (TPG) to pay $325 million. That would bring the total of all proposed settlements in the case to $475.5 million (Dahl, et al. v. Bain Capital Partners, LLC, et al., August 7, 2014).

According to the proposed settlement, Blackstone, KKR and TPG allegedly conspired to fix the prices of many LBOs during a four-year period in the mid-2000s in violation of Sec. 1 of the Sherman Act. The settlement says common questions abound regarding whether these firms agreed to forgo competing for LBO target companies. The plaintiffs say these firms’ acts deprived them of the fair market value of their investments by artificially lowering the share prices of the companies eyed in the deals.

The original complaint, filed in December 2007, alleged horizontal price fixing and both per se and rule of reason violations of the Sherman Act based on a theory that the LBO firms used “bidding clubs” or “consortia” to wrest control of the LBO process for some public companies. The plaintiffs also asked the court to award damages for unjust enrichment, to mandate payment of restitution, and to impose a constructive trust.

The 2007 complaint defined the relevant product market as the LBO tender offerings market of $2.5 billion or more and the allied investment banking services paid for with lowered target company prices. The relevant geographic market was the U.S. The complaint has been amended at least five times since it was filed.

The proposed settlement with Blackstone, KKR and TPG seeks a cash payment of $325 million to a fund on behalf of thousands of investors. Blackstone, KKR and TPG also would have to cooperate in a future trial of any LBO firms who opt not to settle. The settlement class includes the four named plaintiffs and all others who sold or exchanged common shares of eight LBO target companies: AMC Entertainment Inc., SunGard Data Systems Inc., Aramark Corporation, Kinder Morgan, Inc., HCA Inc., Freescale Semiconductor, Inc., Harrah’s Entertainment, Inc., or TXU Corp.

Today’s proposed settlement is a lot like two others reached in June and July of this year, which could yield another $150.5 million for the plaintiffs, if the court approves. Those settlements require three firms to pay sizeable amounts: Bain Capital Partners, LLC ($54 million); The Goldman Sachs Group, Inc. ($67 million); and Silver Lake Technology Management, L.L.C. ($29.5 million).

All proposed settlements in the case are set for a preliminary approval hearing before a federal judge in September. The so-called “Carlyle” defendants (TC Group III, L.P and TC Group IV, L.P.) are now set to go to trial in November.

The case is No. 1:07-cv-12388-WGY.

Attorneys: Thomas J. Undlin (Robins, Kaplan, Miller & Ciresi L.L.P.), Christopher M. Burke (Scott + Scott, Attorneys at Law, LLP), and Patrick J. Coughlin (Robbins Geller Rudman & Dowd LLP) for Kirk Dahl, Police and Fire retirement System of the City of Detroit, City of Omaha Police and Fire Retirement System, and Michael Wojno as Executor of the Estate of Robert Zimmerman.

Companies: Police and Fire retirement System of the City of Detroit; City of Omaha Police and Fire Retirement System; Blackstone Group L.P.; Kohlberg Kravis Roberts & Co. L.P.; TPG Capital, L.P.; Bain Capital Partners, LLC; The Goldman Sachs Group, Inc.; Silver Lake Technology Management, L.L.C.; TC Group III, L.P; TC Group IV, L.P.; AMC Entertainment Inc.; SunGard Data Systems Inc.; Aramark Corporation; Kinder Morgan, Inc.; HCA Inc.; Freescale Semiconductor, Inc.; Harrah’s Entertainment, Inc.; or TXU Corp.

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