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

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)