MELBOURNE Nov 12 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
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
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
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.
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.