Unsealed Lawsuit Claims Private Equity 'Collusion' at Blackstone, KKR, Bain Capital

Allegations swirl over emails among executives at private equity giants Blackstone, Kohlberg Kravis Roberts (KKR), and Bain Capital pointing to collusion as multibillion deals are at stake, court documents show.

(October 11, 2012) — A group of shareholders, including Detroit’s police and fire pension fund, are suing Blackstone, Kohlberg Kravis Roberts (KKR), and Bain Capital Partners for allegedly agreeing not to compete, serving as possible evidence that the firms rigged bids in about 19 leveraged buyouts and eight other transactions, according to federal court documents.

The agreement occurred over emails among top executives at the private equity giants, who allegedly preferred agreement to avoid driving up prices and angering competitors.

In one email, Blackstone Group President Tony James said to colleagues: “[KKR’s] Henry Kravis just called to say congratulations and that they were standing down because he had told me before they would not jump a signed deal of ours.”

In an email to KKR co-founder George Roberts, in reference to the Freescale Semiconductor Ltd. (FSL) buyout, James wrote: “We would much rather work with you guys than against you. Together we can be unstoppable but in opposition we can cost each other a lot of money.” According to the complaint, Roberts replied, “Agreed.”

The email by James was allegedly sent after KKR decided to step down in the $17.6 billion bidding for Freescale, a semiconductor company. Blackstone eventually won the bid.

Kristi Huller, a spokeswoman for KKR, said in an e-mail to Bloomberg: “KKR competes fiercely to find the best deals and the best companies for our investors. The plaintiffs do not challenge the perfectly legitimate practice of club deals but instead make the preposterous claim that the entire private-equity industry came together under a master plan to decide which firms would be permitted to acquire any particular public company.”

The original complaint listed seven buyouts in which collusion allegedly occurred: Freescale, HCA, Aramark, Neiman Marcus, PanAmSat Corp., SunGard Data Systems Inc. and Kinder Morgan. The lawsuit claims that shareholders in more than two dozen companies bought by the private-equity firms between 2003 and 2007 lost at least $1 billion because of collusion by private-equity firms in the HCA deal alone.

Defendants include Apollo Global Management, Providence Equity Partners, Thomas H. Lee Partners, Silver Lake Technology Management, and TPG. The plaintiffs in the case are former shareholders of the acquired companies and include the Police and Fire Retirement System of the City of Detroit, a public pension fund, and a Minnesota-based investor, Kirk Dahl, who owned shares of Freescale.

The case is Dahl v. Bain Capital Partners LLC, 07-12388, U.S. District Court, District of Massachusetts (Boston).