Buyout firm flipped company in one day, Australian court hears

MELBOURNE Mon Nov 12, 2012 12:10am EST

MELBOURNE Nov 12 (Reuters) - A private equity deal involving a Canadian mining services company that was bought and sold on the same day has come under scrutiny in an Australian court.

The case, in which U.S. buyout firm Castle Harlan Inc and Australian engineering firm Bradken Ltd are accused of taking part in "bid rigging," is the first test of an Australian law introduced in 2010 that broadened competition law to include bid rigging.

The case has been brought by the owner of the takeover target, Swiss-based private group Pala Investments, which is controlled by a Russian oligarch, Vladimir Iorich, against Bradken.

Pala sold its Canadian mining services company called Norcast Wear Solutions in July 2011, to New York-based Castle Harlan for $190 million.

Seven hours later, Castle Harlan sold the firm to Bradken, a competitor of Norcast, for $209 million.

In arguments before the Federal Court in Melbourne on Monday, lawyers for Pala alleged that Bradken engaged in "misleading and deceptive conduct" and "bid-rigging" that breached cartel provisions of the law.

Lawyers for Bradken argued there had been no agreement with Castle Harlan to on-sell Norcast.

Pala is seeking at least A$25 million ($25.95 million) in damages, arguing that a trade buyer such as Bradken would usually pay a premium over a private equity buyer. Private equity firms usually hold and manage their investments for a three to five-year period.

EARLIER PLAN

Lawyers for Pala told the court that there was contact between Castle Harlan and Bradken as early as March 2011 when a plan was made in which Bradken would not bid for the asset, but Castle Harlan would bid.

"There is ample evidence to infer they did make that arrangement. Numerous documents implicated Castle Harlan in this deal," lawyer Charles Scerri, acting for Pala, told the court.

Prominent businessman Nick Greiner, a former premier of New South Wales state, was both the chairman of Bradken at the time and deputy chairman of Castle Harlan's Australian affiliate, CHAMP Private Equity, which is the country's oldest buyout firm.

Castle Harlan owns 25 percent of CHAMP.

CHAMP and Bradken have a long history. CHAMP partnered with another firm to buy Bradken in 2001, then floated it on the Australian Stock Exchange in 2004.

"Greiner and (Bradken CEO Brian) Hodges personally devised this scheme," Scerri said.

In an email from Greiner to Hodges dated March 8, submitted to the court, Greiner described the scenario as an "essentially risk-free" investment for the private equity firm.

Both Greiner and Hodges have been named personally as co-defendants in the case.

Greiner and Hodges were not immediately available for comment when Reuters contacted their offices on Monday.

Pala has also filed suit against Castle Harlan in the Supreme Court of New York.

Lawyers for Bradken argued there was no such agreement with Castle Harlan to on-sell Norcast, and argued the sale process run by UBS produced seven indicative offers which led to three binding offers in the final round.

Bradken argues it was excluded from the sale process, which was conducted by inviting interested firms to bid.

The judge is expected to rule on the case in several months.

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