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On The Private Equity "Don't Bid On My Deals; I Won't Bid On Yours" Collusion

Tyler Durden's picture




 

With 'private equity' discussions sliding for one moment off the front pages, NYTimes' DealBook notes that it appears these 'honorable' job-creating entities were allegedly colluding to drive down the prices of more than two dozen takeovers. During the last decade's buyout boom, according to newly released e-mails in a civil lawsuit accusing them of collusion, the two firms appeared to be on much cozier terms.

In September 2006, for instance, Blackstone and K.K.R. were both circling the technology giant Freescale Semiconductor. After a Blackstone group outbid a K.K.R. consortium to buy Freescale for nearly $18 billion, Hamilton E. James, the president of Blackstone, e-mailed his colleagues about Henry Kravis, the billionaire co-founder of Blackstone's rival:

"Henry Kravis just called to say congratulations and that they were standing down because he had told me before they would not jump a signed deal of ours,"

 

Mr. James wrote, two days later, in an e-mail to Mr. Kravis's cousin and co-founder, George R. Roberts. "We would much rather work with you guys than against you,"

Mr. James wrote. "Together we can be unstoppable but in opposition we can cost each other a lot of money."...

 

"Agreed," responded Mr. Roberts.

The e-mails are part of a court filing Wednesday in an antitrust civil lawsuit brought against 11 of the world's largest private equity firms that accuses them of colluding to drive down the prices of more than two dozen takeovers of publicly traded companies.

A judge ordered the private equity defendants to file an unsealed version of the court papers: "These e-mails are strong signals of anticompetitive behavior,"..."It is always highly problematic when you have such freewheeling discussions between competitors."...

As purchase prices reached into the tens of billions of dollars, the firms pooled their money together to make the acquisitions. The private equity industry has said that the consortiums, or club deals, allowed the firms to spread the risk of owning such a large company. In addition, the firms said that by working together they could bring complementary skills in operating the companies once they acquired them.

While the private equity firms characterized the period from 2003 to 2007 as a time of big deal-making and collaboration, the Massachusetts lawsuit contends that something far more sinister was at work... Calling the period "the conspiratorial era," the lawsuit depicts a secret pact between the firms that divided up the big deals among themselves and artificially - and illegally - kept their prices low. There was a "you don't bid on my deal, I won't bid on yours" understanding between the firms, according to the lawsuit.

K.K.R. expressly asked its competitors to "step down on HCA" and not bid on the company, according to an e-mail that was unsealed and written by Daniel Akerson, then a partner at Carlyle and now the chief executive of General Motors. Two colleagues at the private equity firm TPG e-mailed each other about the firm's reasons for deciding to not compete for HCA, according to the lawsuit...

"All we can do is do [u]nto others as we want them to do unto us," Jonathan Coslet, a TPG executive, wrote. "It will pay off in the long run even though it feels bad in the short run."...

Mr. Bush, the University of Houston antitrust law professor, said that such an exchange between the TPG executives should raise eyebrows among government antitrust regulators as classic anticompetitive conduct.

"This sounds like mutual back-scratching," said Mr. Bush. "I'll scratch your back by not bidding on this deal, and you'll scratch mine by not bidding on the next."

 

(h/t Manal Mehta)

 

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Thu, 10/11/2012 - 19:00 | 2879089 nmewn
nmewn's picture

A little bid rigging between cronies.

Thu, 10/11/2012 - 19:14 | 2879115 LetThemEatRand
LetThemEatRand's picture

A little bid rigging between two companies.  What does being cronies have to do with their behavior?  And what do you care -- aren't you against regulations such as those that would make this kind of conduct improper?    

Thu, 10/11/2012 - 19:19 | 2879121 Dalago
Dalago's picture

The prisoner's dilemma.

Thu, 10/11/2012 - 19:24 | 2879130 Zero Govt
Zero Govt's picture

ever bought red peppers or carrots at a farmers market?

done any haggling?

No rules whatsoever

that's how a free market operates, it doesn't need tons of regulations or lawyers or contracts. Just simple buying and selling

 

Thu, 10/11/2012 - 19:33 | 2879140 LetThemEatRand
LetThemEatRand's picture

Works great in a farmers' market.  Not so great among venture capital firms apparently who have unequal bargaining power.  But then again that is obvious to virtually everyone except blind ideologues.

Thu, 10/11/2012 - 19:52 | 2879172 Harbanger
Harbanger's picture

If you're not doing anything tomorrow night, lets go see Atlas Shrugged part II.

Edit: I promise not to touch your titties.

Thu, 10/11/2012 - 19:58 | 2879202 nmewn
nmewn's picture

"But then again that is obvious to virtually everyone except blind ideologues."

Thats pretty funny coming from someone who uses LetThemEatRand as a handle.

Thu, 10/11/2012 - 20:06 | 2879207 LetThemEatRand
LetThemEatRand's picture

Just admit you are an ideologue.  So much so that you blame cronyism for the price fixing of private individuals (the fact that they work for corporate entities has nothing to do with the behavior) with no governmental role whatsoever.  So much so that you don't even realize that the entire article is about behavior which is only improper or illegal because of government regulations that you want to do away with.   But carry on with your "I'm rubber you're glue" bullshit if it makes you feel better.

Thu, 10/11/2012 - 20:33 | 2879263 nmewn
nmewn's picture

I never said I didn't have an ideaology, I freely admit it and it can be seen in everything I say or have ever said. You, on the other hand, cannot bring yourself to the realization that your trust in government AS THE benevolent benefactor and arbiter to all society is misplaced.

That is a failed ideologue isn't it?

It can spend a quadrillion on unworkable "solutions" to "percieved" issues which benefit only elites financially and you will say that is the price of civilization and paving over grass.

You are a moron.

You will sit by and say nothing about open bid rigging on the bridges & roads built by government contractors because they "serve a public purpose". You will stand there like an idiot and let college kids go into insurmountable debt and say its an "ïnvestment" for their future. Let someone say XYZ Corp is a known O'Barry bundler and you howl they are an anarchist bent on eating little fluffy puppy dogs and poor children.

Maybe you don't remember the first time we interacted but I do. I took you down through the ten planks of the communist manifesto and you agreed with every one of them...I just didn't tell you till the end...it was those ten planks...lol.

Anyone can do it to you to this day still...unless you start lying, which will be easy to spot ;-)

Thu, 10/11/2012 - 20:39 | 2879282 Sock Puppet
Sock Puppet's picture

Strawman, you guys wouldn't know ideology if hit between the fucking eyes like a 2 by 4.  You couldn't debate yourself out of a wet paper sack.

Thu, 10/11/2012 - 20:42 | 2879295 nmewn
nmewn's picture

Your little sock puppet lap dog aside LTER...lets do it...

Abolition of all rights of inheritance.

Agree or disagree?

Thu, 10/11/2012 - 20:51 | 2879316 nufio
nufio's picture

i think it should be a 70 year lease on property.. like in china... no eternal property inheritance. 

also 70 year validity to patents.

 

Thu, 10/11/2012 - 20:57 | 2879330 Cliff Claven Cheers
Cliff Claven Cheers's picture

 

Thu, 10/11/2012 - 20:34 | 2879262 Sock Puppet

Dude, looks like you let a bunch a pansy candy asses into fight club by accident. No balls around here just a bunch of dipshits waiting for the sky to fall.

I guess I offended the Tylers with this last comment. I thought this was fight culb, not pussies club.

Thu, 10/11/2012 - 21:03 | 2879350 Cliff Claven Cheers
Cliff Claven Cheers's picture

The Tylers are wiping all my Sock Puppet comments as we speak.  So much for freedom of speech around here.

Thu, 10/11/2012 - 20:53 | 2879320 Cliff Claven Cheers
Cliff Claven Cheers's picture

nmewn, Sock Puppet Here disguised as Cliff Claven.  Looks like the Tylers banned my sock puppet avatar.  I guess this place is run by pansies now.  Not like the old fight club.  Must be under new corporate ownership.

Anyway I will proceed to insult everyone with ol cliff.

Thu, 10/11/2012 - 21:07 | 2879359 Cliff Claven Cheers
Cliff Claven Cheers's picture

Looks like the Tylers don'g like ol Cliff either.  They keep bumping me off.

Thu, 10/11/2012 - 19:52 | 2879193 Oleander
Oleander's picture

Have had other farmers suggest we raise our prices on products because they are selling said produce at a higher price.

Ha Ha- We of course did not. We let the customers decide where to shop. So glad we avoided collusion. We do not make any deals w/ hagglers either by the way.

Thu, 10/11/2012 - 20:02 | 2879206 Miss Expectations
Miss Expectations's picture

EVERY vendor at my farmer's market sells their tomatos for $3.00/pound.  $3.00/POUND!!  Stopped going.

Thu, 10/11/2012 - 19:50 | 2879186 nmewn
nmewn's picture

"A little bid rigging between two companies."

I thought companies weren't people dumbass.

"What does being cronies have to do with their behavior?"

About the same as Solyndra crony executives trying to bilk a few million more through the tax code spud...read it and fucking weep...

http://www.businessweek.com/news/2012-10-10/solyndra-bankruptcy-plan-has-objections-from-irs-energy

"And what do you care -- aren't you against regulations such as those that would make this kind of conduct improper?"

I'm pretty sure you're a green weenie who was all about indebting our children with shit like Solyndra. Its "the law"...its "regulated".

Tell me again how law and regulation cannot be used by statists such as yourself to pick losers AND even still MORE losers.

Fiskers next bitch and we'll go right down the line back to the CRA.

Thu, 10/11/2012 - 20:04 | 2879213 LetThemEatRand
LetThemEatRand's picture

Nice non-answer.  Whenever you start the name calling, I know I got to you.  Do yourself a favor and don't play poker.  You'll lose your ass.

Thu, 10/11/2012 - 22:36 | 2879301 nmewn
nmewn's picture

Move up and answer the question...I'm gonna out your ass right now.

//////////////////////

I notice you didn't move up to the heavyweight division and answer the question posed LTER. From here on out I will pose the same ten questions LTER. Be ready...you've been advised.

I'm tired of fucking with you...have the answers.

Thu, 10/11/2012 - 19:20 | 2879124 Cognitive Dissonance
Cognitive Dissonance's picture

Is this that "found swimming bare assed naked when the tide goes out" stuff old Warren was talking about? Or is this just "bidness" as usual in the Wall Street Mafia?

Thu, 10/11/2012 - 19:51 | 2879191 Sock Puppet
Sock Puppet's picture

Brother Cog, Cdad here, I mean Sock Puppet. Been awhile since we had a litte fun banter back and forth here in fight club.  Glad you could make it.

Thu, 10/11/2012 - 20:05 | 2879211 Cognitive Dissonance
Cognitive Dissonance's picture

Brother Cdad Sock Puppet,

Please flash the secret hand signal we agreed upon at the last Zero Hedge veteran's conference in Las Vegas so I'll know you are "you".

And pull up your damn short pants while swimming around here. Your plumber's crack is showing for God's sake. 

Brother Cog.

:)

Thu, 10/11/2012 - 20:23 | 2879240 Sock Puppet
Sock Puppet's picture

I have been reading this site since its inception.  I am on my fourth avatar now.  You know, a little too much to drink or I forget the meds and I say all sorts of stupid shit.  Nice thing about the interwebs is there is always reincarnation going on.

Thu, 10/11/2012 - 19:00 | 2879090 TideFighter
TideFighter's picture

RICO, you gots some 'splainin to do!

Thu, 10/11/2012 - 19:24 | 2879134 sunaJ
sunaJ's picture

Ha,ha. Criminal prosecution for financial corruption? That is so last century.

Thu, 10/11/2012 - 19:53 | 2879176 Cognitive Dissonance
Cognitive Dissonance's picture

Too funny.

The last century? Or the last last century? Because there weren't too many successful corruption cases brought in the 1900's except for the patently obvious stuff. If you read about it in the papers it had gotten so bad a blind man could see it. Then a few cases were brought to court allowing the rest of the cockroaches to scurry for cover.

Thu, 10/11/2012 - 19:00 | 2879091 riphowardkatz
riphowardkatz's picture

PERS must get its 8%. No one will care.

Thu, 10/11/2012 - 19:01 | 2879092 Careless Whisper
Careless Whisper's picture

These guys remind me of da boys runnin' tha local garbage company.

 

Thu, 10/11/2012 - 19:22 | 2879129 Tom in AZ
Tom in AZ's picture

That was Grandpa, then he sent the kids to college.

 

Thu, 10/11/2012 - 19:37 | 2879157 Cognitive Dissonance
Cognitive Dissonance's picture

I grew up in a small town heavily populated with "da boys". There was always some anger and even jealousy of the racket corporations and government had going. That official collusion (corruption really) was often used to justify da boys own actions. I suspect that worked in reverse as well.

Thu, 10/11/2012 - 21:39 | 2879439 ceilidh_trail
ceilidh_trail's picture

Yup. Still goes on today in Independence, Ky. Btrds use their own agencies to punish anyone who goes against 'em.

Thu, 10/11/2012 - 19:10 | 2879103 ThisIsBob
ThisIsBob's picture
http://img.fark.net/images/topics/topic_sprite.png); margin: -7px 0px 0px; width: 54px; display: block; background-position: 0px -26px; float: left; height: 11px; font-size: 14px; vertical-align: baseline; overflow: hidden; border: 0px; padding: 0px;"> 

"Never write when you can talk. Never talk when you can nod. And never put anything in an email."

 

(Elliot Spitzer)

Thu, 10/11/2012 - 19:09 | 2879105 TideFighter
TideFighter's picture

Tyler, you missed the point on this one. Bain is the target, even though the AT actions occurred AFTER he left Bain, this will be a breaking story. 

"The evidence in the case comes as the private equity firms and their business practices remain a focus of the presidential race. The Republican presidential nominee Mitt Romney founded Bain Capital, which is a defendant in the lawsuit. Mr. Romney has made his Bain tenure a cornerstone of his campaign to demonstrate his leadership and private sector experience. At the same time, President Obama has used Bain to attack Mr. Romney, accusing the firm of firing employees at its acquired companies and sending jobs overseas."

Thu, 10/11/2012 - 19:23 | 2879131 amadeusb4
amadeusb4's picture

It doesn't matter when Mittens left Bain unless he divested from Bain at the same time.

Obama's campaign has left a lot of meat on the Bain bone untouched. They could go after the Bain connection with Salvadoran death squads or Bain practices with former Soviet asset privatization or even Sensata. It's a wonder that the R's picked such a grotesque candidate with so many liabilities but then you look at the field they had to work with: Gov. Can't remember the third Fed dept he would cut, CEO Uzbekibekibekistan, Gov. vaccines make you instantly retarded, Former Speaker of the House on the moon and Santorum. Was there ever even a question of Obama's reelection in the face of a party that's self immolating before our eyes? Really?

Thu, 10/11/2012 - 19:31 | 2879139 TideFighter
TideFighter's picture

Really? Then there's that whole Frank Davis story. I won't expound because, in my opinion, ZH is better suited for info that bashing candi-dates. 

Thu, 10/11/2012 - 19:29 | 2879142 iDealMeat
iDealMeat's picture

I doubt they will pick any Bain bones..   Goldman Sachs owns both of them..  They set the narrative.

Thu, 10/11/2012 - 19:53 | 2879195 amadeusb4
amadeusb4's picture

Oh, sorry, it has been pointed out that it is actually Congresswoman vaccines make you instantly retarded. My bad. I'm not from that part of the country, but have flown through MSP and interacted with people there who have apparently gone their entire lives without any kind of vaccinations.

Thu, 10/11/2012 - 19:09 | 2879106 Sock Puppet
Sock Puppet's picture

Sorry I can't keep with all the stories at the same time.  I am running 3 other Avatars here on ZH.

Thu, 10/11/2012 - 19:17 | 2879118 TideFighter
TideFighter's picture

I know 2, the 3rd was a shock. 

Thu, 10/11/2012 - 19:25 | 2879135 Sock Puppet
Sock Puppet's picture

I have a couple of for sale, well seasoned histories with user profiles that match all the comments.  These are very persuasive characters.

Thu, 10/11/2012 - 19:29 | 2879143 TideFighter
TideFighter's picture

Reverse Avatar Merger? RAM? Are you asking people to get RAM'd? hehe

Thu, 10/11/2012 - 19:33 | 2879151 Sock Puppet
Sock Puppet's picture

I have so many conversations going on I can't even remember who or what I am spinning.  Anyway I am off shift in an hour, Bob will take over.

Thu, 10/11/2012 - 19:49 | 2879185 spanish inquisition
spanish inquisition's picture

Not so fast. I have been thinking of adding another handle for a while but don't want to start from scratch. Anything thats been registered for say 2 years with a whimsical devil may care attitude?  I need to have online battles with myself to up my profile and battling with anyone under 2 years isn't gonna give me the juice I need. I would need to see the posts to see how my "conversations" would play out and forward my agenda. Anything from Paypal to WOW gold. Have Bob get ahold of me if you are out... (/sarc hehe. that was fun)

Thu, 10/11/2012 - 20:25 | 2879205 Sock Puppet
Sock Puppet's picture

I can let go of my Trav7777 avatar, that one got away from me.  He turned out to quite the douche nozzle, couldn't keep his stories straight.  Or I mean I couldn't keep my lies straight.

BTW I want paid in Euros, I don't trust that american money.

Thu, 10/11/2012 - 21:33 | 2879395 spanish inquisition
spanish inquisition's picture

Can't handle Trav. The well is poisoned. hehe  Edit: I can  do Euros, just need to convert wow gold or bitcoins

Thu, 10/11/2012 - 20:31 | 2879255 Sock Puppet
Sock Puppet's picture

Also you can have Gunslinger. I don't know if you remember him.  He went off the fucking reservation (hope that doesn't offend any Native Americans) then that Ginslinger started impersonating him.  I just got tired of using him but he is a useful idot.

Thu, 10/11/2012 - 21:29 | 2879405 spanish inquisition
spanish inquisition's picture

Did ginslinger send a ransom note? Honestly, where is the love for hard working folk who set up avatars and play them for over a YEAR hoping for a payday just to have someone avatar block them.

Thu, 10/11/2012 - 21:33 | 2879415 Anusocracy
Anusocracy's picture

"but he is a useful idot."

The story of your life?

Thu, 10/11/2012 - 19:12 | 2879112 zendome
zendome's picture

"All we can do is do [u]nto others as we want them to do unto us," Jonathan Coslet, a TPG executive, wrote. "It will pay off in the long run even though it feels bad in the short run."...

 

So this means we get to financially corn hole them right back correct?

Thu, 10/11/2012 - 19:14 | 2879114 Catullus
Catullus's picture

Judging by how KKR bid $40bn for TXU in 2006, I'd say the strategy didn't work.

Thu, 10/11/2012 - 19:33 | 2879152 rockraider3
rockraider3's picture

That's one of the things people are missing.  Blackstone and KKR aren't the only two bidders in the process.  Whoever is bidding still has to compete with other PE firms and strategics.

Thu, 10/11/2012 - 19:20 | 2879123 Downtoolong
Downtoolong's picture

Their best defense will be that they were just lying to their competitors about not competing.

Anyone and everyone can imagine them doing that.

Thu, 10/11/2012 - 19:32 | 2879125 drivenZ
drivenZ's picture

so then why doesn't someone else (another corporate) step up and bid? if it's not a good deal then shareholders and mgmt shouldn't approve it. What happened before PE? nothing, M&A was boring and maybe that's how it should be. If PE firms are all grossly lowballing targets so often you'd think the traditional M&A market would step in. 

Thu, 10/11/2012 - 19:24 | 2879132 TideFighter
TideFighter's picture

Romney posted income from several of these Bain deals on his tax returns, which is why the dems desperately wanted him to release them. Even though he "left" in 1999, he structured gains for six more years. The Dems are trying to "tie" him anyway, by stating that he profited millions from those deals. 

They could care less about the other defendants, only Bain. Others were added only to throw off the appearance that it was a Dem attack on Romney.

Thu, 10/11/2012 - 19:28 | 2879141 rockraider3
rockraider3's picture

These are an auction process, so what if a couple of PE firms agree to not try to out bid each other.  They aren't the only bidders. There are other PE firms bidding.  And strategics bidding as well.  

Pitch books for these deals are sent to HUNDREDS of parties.  A couple of them agreeing that it's not best for their LP's if they are involved in bidding wars isn't collusion. 

A lot of PE firms won't even look at auction processes, because it's too competitive.  Are they colluding too?

Last point --- Even if the highest initial bid was surpressed by this "collusion", the seller doesn't have to accept the bid.  D'oh.  If they don't like the price, they don't have to sell.  Imagine that.

We live in a ridiculous nanny state.

Thu, 10/11/2012 - 19:36 | 2879159 chet
chet's picture

They wouldn't go through the trouble of colluding if it wasn't working for them somehow.  In the emails, they seem to talk like it has some purpose.

Thu, 10/11/2012 - 19:30 | 2879146 orangegeek
orangegeek's picture

Happens all day long.  I guess the issue here is that they got caught.

 

So the problem is Wall Street, once again and it's government to the rescue.

 

The reality is that government is the problem.

Thu, 10/11/2012 - 19:36 | 2879150 Anglo Hondo
Anglo Hondo's picture

I wondered where Dan Akerson went after MCI was bought out by Worldcom.  Now I know. Government Motors.

Missed it somehow.

 

Thu, 10/11/2012 - 19:34 | 2879153 chet
chet's picture

I'm sure these firms will end up paying "severe penalties" of a few million dollars before the whole matter quietly disappears.

Thu, 10/11/2012 - 19:40 | 2879165 TideFighter
TideFighter's picture

"Hello, Chet"

This is umm, Arthur, yeah Arthur (that's it!) from the RNC. To whom will I be making out this check? I'm going to express it, is that ok? Thanks. 

Thu, 10/11/2012 - 19:48 | 2879184 chet
chet's picture

What I can't figure out.  Aren't these supposed to be the "top talent" of our meritocracy, from the Ivy League and all that. And they can't figure out not to put this shit in emails?  If this is the best and brightest, maybe I'd do better on Wall Street then I thought.

Thu, 10/11/2012 - 19:51 | 2879190 adr
adr's picture

It is amazing how much idiocy can be covered by a silver spoon.

Thu, 10/11/2012 - 22:10 | 2879552 CPL
CPL's picture

Don't ever be an asshole to the Lan Admin.  Keepers of the keys to the kingdom.

 

Thu, 10/11/2012 - 19:50 | 2879187 adr
adr's picture

Hi, so what is your bid? Oh wow $20 billion, a $4 premium over the closing price yesterday. That'll make investors a quick 20%.

Mind if we buy a couple million shares, we'll be quiet about it.

Don't worry we won't make a bid and we'll let you know what our next takeover will be. Return the favor, maybe even let you make an extra 10%.

-----

If you're in the club, you're in the club. If you're not in the club you aren't getting in.

Thu, 10/11/2012 - 20:12 | 2879222 Onohymagin
Onohymagin's picture

Ah, the rats are co-operating over the last of the rations before the ship sinks.

Good to know there is still honor among thieves.

Thu, 10/11/2012 - 20:15 | 2879227 venturen
venturen's picture

I thought my investment banks representing me would get the best deal?

Thu, 10/11/2012 - 20:43 | 2879297 jo6pac
jo6pac's picture

The free market at work, how wonderful

Thu, 10/11/2012 - 21:57 | 2879458 hedgehog9999
hedgehog9999's picture

Some people will say this is a form of racqueteering!!!

This whole thing is rotten to the core. No matter where you look, there is malfeasance and corruption.

Fri, 10/12/2012 - 07:08 | 2880641 Just Ice
Just Ice's picture

That we were peaking into a culture of dishonesty hit home (for me) in the 90's when a black man could no longer be convicted of killing a white woman by a black jury (360 degree flip from the days a white man could not be convicted of killing a black man by a white jury), and there was no shame in a president quibbling over what the meaning of "is" was as to whether the crime of perjury had been committed.  Pretty much free for all on the unabashed corruption after that, from lowlevel dishonesty in parsing for spin machines, to blatant rip offs of the public, clients and shareholders. 

Thu, 10/11/2012 - 22:38 | 2879666 golfrattt
golfrattt's picture

"And in 5-8 years, HARVEST them for a nice profit"

- Mitt Romney

Thu, 10/11/2012 - 23:01 | 2879766 Flakmeister
Flakmeister's picture

Once upon a time there was still unplundered loot to be pillaged in this country.....

Let's not overly tax those job creators eh?

Fri, 10/12/2012 - 05:01 | 2880215 pitz
pitz's picture

The owners of the business weren't *forced* to sell to the private equity guys.  If the price/offer wasn't appropriate, then its the sellers' fault that they accepted the low offer. 

Do NOT follow this link or you will be banned from the site!