Buyout buddies

11 October 2012 By Christopher Swann

Newly disclosed emails appear to support allegations that Blackstone, KKR and others colluded to keep prices down. Yet many of those pre-crisis mega-deals like Freescale and TXU have turned out terribly. Guilty or not, the case should worry investors in private equity firms.

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Top executives at some of the world’s largest private equity firms, including KKR and Blackstone Group, sent emails that allegedly show them plotting to drive down prices on takeover targets from 2003 to 2007, according to court documents unsealed on Oct. 10. The firms have denied the accusations.

“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 quoted in the lawsuit filed by shareholders in the companies that were sold to the buyout firms.

The email was allegedly sent after KKR decided to stand down in the $17.6 billion bidding for Freescale Semiconductor, which was eventually acquired by a Blackstone-led group.

“Together we can be unstoppable but in opposition we can cost each other a lot of money,” James wrote.

Shareholders in more than two dozen companies sold to private equity firms in the pre-crisis buyout boom 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 Capital, 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.

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The email was allegedly sent after KKR decided to stand down in the $17.6 billion bidding for Freescale Semiconductor, which was eventually acquired by a Blackstone-led group.

“Together we can be unstoppable but in opposition we can cost each other a lot of money,” James wrote.

The lawsuit alleges that shareholders lost at least $1 billion because of collusion by private equity firms in the HCA deal alone.

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