Top executives at some of the world's largest private equity firms, including KKR & Co LP (KKR.N) and Blackstone Group LP (BX.N), sent emails that allegedly show them plotting to scoop up companies on the cheap during last decade's buyout boom, according to court documents unsealed on Wednesday.
The emails were revealed in an unredacted version of a lawsuit filed by shareholders in companies bought by private equity firms, alleging buyout firms held down the value of takeover targets by colluding on deals.
"We would much rather work with you guys than against you," Blackstone President Tony James wrote in an email to KKR co-founder George Roberts that is quoted in the lawsuit.
The e-mail was allegedly sent after KKR decided to step down in the $17.6 billion bidding for semiconductor company Freescale - a sales process that a consortium led by Blackstone eventually won.
"Together we can be unstoppable but in opposition we can cost each other a lot of money," James wrote.
Blackstone and KKR declined to comment on the lawsuit.
Shareholders in more than two dozen companies bought by private equity firms between 2003 and 2007 claim to have lost billions of dollars because of the alleged conspiracy around takeovers, such as the leveraged buyout in 2006 of hospital company HCA by Bain, KKR and others worth $32.1 billion, including debt.
The lawsuit alleges that shareholders lost at least $1 billion because of collusion by private equity firms in the HCA deal alone.
They have sued more than 10 firms including KKR, Blackstone, TPG Capital, Carlyle Group (CG.O), Bain Capital LLC and Goldman Sachs Group Inc's (GS.N) private equity arm.
The evidence is presented to back up allegations that the investment firms used a quid pro quo approach to dealmaking. The plaintiffs allege that various buyout firms underbid or declined to bid in auctions of companies in return for a role as a co-investor or to prevent competition for companies they coveted.
It is not clear from the documents, however, what the context of these communications are. The complaint cites parts of emails to build the case against private equity firms, but does not disclose the entire messages.
Private equity firms have said that the quotes are taken out of context and merely reveal communications between companies that frequently work together on deals, not collusion to bring down prices.
TPG said in a statement it never colluded to suppress prices in buyouts and when it chose not to bid it was acting in the best interests of its investors.
"We competed vigorously for deals that the firm both won and lost," the firm said in an email to Reuters.
The private equity firms had argued that unsealing the complaint would "harm the competitive position of the defendants and their portfolio companies."
But a federal judge in Boston decided to release a mostly uncensored version in response to a motion by the New York Times.
The disclosures could embarrass the private equity firms, which already find themselves in an uncomfortable spotlight thanks to Mitt Romney's run for president as the Republican nominee.
Romney, who cofounded Bain, left the private equity firm in 1999, before the transactions in question.
ALLEGATIONS OF CONSPIRACY
The 221-page complaint cites numerous deals and communications between senior private equity executives.
One of the deals called into question by the lawsuit is SunGard Data Systems Inc's 2005 takeover by a group of seven private equity firms for $11.4 billion.
Silver Lake Partners, Bain Capital, Blackstone, Goldman Sachs Capital Partners, KKR, Providence Equity Partners and TPG bought the financial data company.
James Coulter, co-founder of TPG, wrote in an email that being aggressive in a deal for SunGard would make enemies "while perhaps benefiting no one but the (company's) shareholders", according to the lawsuit.
In the buyout of HCA, James Attwood, a managing director at Carlyle Group, wrote in an email to Alex Navab, co-head of KKR's North American private equity business: "We will not in any way interfere with your deal. We would, of course, love to join you if you need more equity, but rest assured that you will not see us in any other context on HCA."
Carlyle was not immediately available for comment.
An unnamed Blackstone executive wrote in an internal email: "<the HCA> deal represents good value and is a shame we let KKR get away with highway robbery."
However, the lawsuit claims KKR briefly upset the club rules by bidding on Freescale, a semiconductor company that was in the sights of Blackstone. KKR's interest forced Blackstone to increase its bid, according to the lawsuit.
Blackstone retaliated by signing a confidentiality agreement with HCA. That signal of willingness to compete with KKR for the hospital company forced both companies to pull back, according to the lawsuit.
KKR eventually led the deal for HCA, and Blackstone led the deal for Freescale.
The case is Dahl et al v. Bain Capital Partners LLC et al, U.S. District Court, District of Massachusetts, No. 07-12388.
(Reporting By Tom Hals in Wilmington, Delaware, and Michael Erman in New York; Editing by Paritosh Bansal, Andrew Hay and Richard Pullin)