Going Private Deals Maybe Not So Sweet for Shareholders

According to news reports here (Bloomberg) and here (Reuters) a class action complaint (Murphy v. Kohlberg Kravis, 06-cv-13210 (S.D.N.Y.) has been filed against more than a dozen private equity firms, alleging that the plaintiffs did not receive full value for the shares they exchanged because of a conspiracy that violated antitrust laws.

The complaint was filed in the United States District Court for the Southern District of New York by Wolf Haldenstein Adler Freeman & Herz LLP and follows on the heels of reports last month that Department of Justice was investigating this very issue. Both Business Law Prof Blog and Ideoblog have posts on the DOJ's investigation.

As of tonight, a copy of the complaint is not yet available from either the firm's website or the Court's ECF website, but according to the Reuters article, it alleges that the investment firms formed "clubs" among themselves to bid collectively in buyout actions. It also charges that the firms exchanged information and submitted bids at agreed upon prices.

The complaint also alleges that the plaintiffs:

were paid less for their equity shares that they sold to the private equity defendants and their co-conspirators than they would have been paid under conditions of free and open competition.

And according to the Bloomberg article:

Investors in the target company are deprived of the full economic value of their holdings and 'squeezed out' at artificially low valuations.

The class action names many of the largest private equity firms, including:

• Apollo Management
• Bain Capital
• The Blackstone Group
• The Carlyle Group
• Clayton, Dubilier & Rice, Inc.
• Kohlberg Kravis Roberts & Co.
• Madison Dearborn Partners
• Providence Equity Partners, Inc.
• Silver Lake Partners
• Texas Pacific Group Ventures Inc.
• Thomas H. Lee Partners, L.P.
  
• Warburg Pincus, LLC
  

The plaintiffs are individuals who own shares of Univision Communications Inc. (NYSE: UVN) (which agreed in June to a $12.3 billion buyout by four private equity firms), HCA Inc. (NYSE: HCA) (which agreed to be acquired by an investor group that includes Bain Capital, KKR, and Merrill Lynch & Co. for about $21 billion) and Harrah's Entertainment Inc. (NYSE: HET) (which is reviewing a buyout offer worth $15 billion from Apollo Management and Texas Pacific Group).

Daily Trivia: One of Madison Dearborn Partners portfolio companies is WM. Bolthouse Farms, Inc., the leading North American producer of carrots and carrot-related products. The Bolthouse family created the so called "Baby-cut Carrots" in 1990, which much to the surprise of children everywhere are really just cut and peeled full-size carrots. The leftover carrot pulp is recycled into cattle feed.