A federal judge on Thursday allowed investors to pursue a closely watched lawsuit accusing several of the world's largest private equity firms of colluding to depress prices on companies they sought to buy.
While dismissing Apollo Global Management LLC (APO.N) and Providence Equity Partners Inc from the case, U.S. District Judge Edward Harrington in Boston said eight other firms must face claims that they conspired not to outbid each other after transactions were announced, a practice known as "jumping."
Harrington rejected requests by Bain Capital Partners LLC, Blackstone Group LP (BX.N), Carlyle Group LP (CG.O), Goldman Sachs Group Inc's (GS.N) private equity arm, KKR & Co (KKR.N), Silver Lake Partners, Thomas H. Lee Partners LP and TPG Capital Management LP to be dismissed from the case.
The judge said evidence was strong enough to allow claims that these firms had an understanding, reflected in what one email described as "club etiquette," not to jump each other.
But he said there was "without doubt, strong evidence" that each had independent reasons not to pursue particular buy-outs, and that these defenses could be addressed later.
The plaintiffs include shareholders in formerly publicly traded companies that were bought by the private equity firms between 2003 and 2007. Eight buy-outs remain in the case, comprising transactions totaling well over $100 billion.
"If you're a plaintiff, this is a good day," Christopher Burke, a partner at Scott & Scott representing the shareholders, told Reuters in a telephone interview. "The judge saw enough evidence of an overarching conspiracy to go to trial. The case is still worth billions of dollars."
The lawsuit began in 2007 and originally accused the firms of conspiring to deflate prices, sometimes by 10 percent, in 27 transactions valued at roughly a quarter of a trillion dollars.
"We are disappointed by the court's decision and we will continue to vigorously fight the plaintiff's spurious claims," a KKR spokeswoman said in an email.
Apollo, Blackstone, Bain, Carlyle, Providence, Silver Lake, Thomas H Lee and TPG declined to comment. Goldman did not respond to requests for comment.
Harrington in March said the plaintiffs did not offer enough evidence of a broader price-fixing conspiracy, and narrowed the case to focus on the jumping claims.
He said eight takeovers remain: movie theater chain AMC, food service company Aramark, chipmaker Freescale Semiconductor; casino operator Harrah's, hospital chain HCA, pipeline operator Kinder Morgan, software maker SunGard and power company TXU.
HCA, FREESCALE, HARRAH'S
In Thursday's decision, Harrington said there were open issues as to whether Blackstone, Carlyle, Goldman and TPG had an agreement to "stand down" and allow Bain, KKR and others to pursue their $32.1 billion leveraged buyout of HCA in 2006.
The judge also said there were open issues as to whether Bain, KKR and Silver Lake had agreed with Blackstone, Carlyle and TPG not to disrupt their $17.6 billion purchase of Freescale the same year. Permira was also in the winning consortium.
As for Thomas H. Lee, Harrington pointed to internal emails that suggested the firm would not "bust things up" or engage in "ambulance chasing" if they knew a Harrah's buyout was close.
Apollo and TPG bought Harrah's in 2008 for $17.3 billion.
Harrington previously let the plaintiffs sue over an alleged conspiracy to rig bids and not compete for HCA. Blackstone, Carlyle, Goldman and TPG are the defendants against that claim.
JPMorgan Chase & Co (JPM.N), which worked on some of the transactions, had previously been dismissed as a defendant.
Bain founder Mitt Romney, the 2012 Republican presidential candidate, left that firm before the transactions in question.
The case is Dahl et al v. Bain Capital Partners LLC et al, U.S. District Court, District of Massachusetts, No. 07-12388.
(Additional reporting by Greg Roumeliotis in New York; Editing by Gerald E. McCormick, Kenneth Barry, Andrew Hay and Dan Grebler)