Antitrust Law Daily Wrap Up, ANTITRUST—D. Mass.: Private equity firm escapes leveraged buyout antitrust litigation, (Sep 3, 2013)

By Tobias J. Gillett, J.D., LL.M.

In an action brought by shareholders of formerly publicly-traded companies that were purchased by private equity firms, claiming that the firms colluded to fix the prices of the leveraged buyout transactions (LBOs), the federal district court in Boston reconsidered its decision finding that one of the firms could be connected to the conspiracy by statements made by its executives regarding another transaction (Dahl v. Bain Capital Partners, LLC, August 29, 2013, Harrington, E.). The court therefore allowed the firm’s motion for summary judgment.

In 2006, a consortium—including The Blackstone Group L.P., The Carlyle Group, and Texas Pacific Group (TPG)—engaged in a LBO of Freescale Semiconductor, Inc., while a second consortium—including Kohlberg Kravis Roberts & Company, L.P. (KKR) and Bain Capital Partners, LLC—engaged in a LBO of Healthcare Corporation of America (HCA). According to the plaintiffs, Goldman Sachs Group, Inc., Blackstone, Carlyle, and TPG stood down from the HCA deal after the deal was signed, and after KKR “asked the industry to step down on HCA.”

On July 18, 2013, the court issued an order denying motions for summary judgment filed by eight of the private equity firms. The court found the evidence was sufficient to create an issue of fact as to whether the firms had followed “club etiquette” and conspired to refrain from “jumping” each other’s announced proprietary deals.

With respect to defendant Thomas H. Lee Partners, L.P. (THL), the court found e-mail correspondence between THL executives regarding whether THL should compete for a transaction involving Harrah’s Entertainment was sufficient to establish THL’s connection to the overarching conspiracy. Specifically, one executive’s e-mail stated “I know we typically don’t bust things up-I’m trying to find out from my friend who is the CFO what the status of the deal is-early or late stage,” and another executive responded “I hate ambulance chasing someone else’s deal if it’s pretty baked. Find out status.”

THL filed a motion for reconsideration, asserting that the court had misapplied the standard for summary judgment in antitrust cases established by the U.S. Supreme Court in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), under which “conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy.”

The court granted the motion, determining that its previous conclusion had been erroneous. The e-mail exchange “was an internal discussion, which was not conveyed to other co-defendants and which otherwise fails to suggest an association based on an agreement between THL and TPG, the other co-defendants seeking the Harrah’s deal.” The court found the exchange to be “as consistent with an independent fear of retaliation by TPG as it was with an agreement with TPG not to ‘jump’ announced proprietary deals.” In addition, statements made by THL’s co-defendants during the Freescale and HCA transactions were inadmissible against THL because no other evidence showed that THL was involved in those transactions or in the overarching conspiracy.

The court also concluded that evidence relating to a transaction regarding Aramark Corporation was also insufficient to connect THL to the overarching conspiracy, an issue not reached in its previous decision. An e-mail between executives at Goldman Sachs, THL’s consortium partner on that deal, had read “trying to get the word out that given 40% voting control by management this is a done deal, although stock continues to trade above offer price of $32.” The court found that the Aramark consortium’s interest in “get[ting] the word out” that the transaction was a “done deal” was “without more, as consistent with an independent effort to deter a last-minute competing bid before the deal was signed, as it [was] with a request to the industry to ‘stand down’ pursuant to an agreement.”

The case is Civil Action No. 07-12388-EFH.

Attorneys: Brian Philip Murray (Glancy Binkow & Goldberg LLP) for Kirk Dahl. Craig S. Primis (Kirkland & Ellis LLP) for Bain Capital Partners, LLC. Richard R. Cook (Weil, Gotshal & Manges LLP) for Thomas H. Lee Partners, L.P.

Companies: Bain Capital Partners, LLC; Thomas H. Lee Partners, L.P.

Cases: Antitrust MassachusettsNews