Leading private equity firms – The Blackstone Group L.P. (BX - Analyst Report), Kohlberg Kravis Roberts & Co. L.P. (KKR - Snapshot Report) and TPG Capital LP – have agreed to settle a lawsuit that accused them of pulling down the prices of leveraged buyouts (LBOs) through collusion before the financial crisis. The defendants will be paying $325 million in aggregate as the settlement amount.
The settlement, reached on Jul 28, was disclosed in the court filings on Thursday. The lawsuit was filed way back in Dec 2007 by former shareholders of the acquired companies. It accused more than 10 private-equity firms of rigging the bids to lower competition for takeovers between 2003 and 2007, thereby depriving investors of billions of dollars.
Originally 27 buyouts formed part of the litigation. Consequently in 2013, a federal judge dismissed claims of alleged collusion prior to the announcement of buyouts. The remaining buyouts included movie theater chain AMC Entertainment Inc, casino operator Harrah's Entertainment Inc, software maker SunGard Data Systems Inc and pipeline operator Kinder Morgan Inc, among others
Apart from Blackstone, KKR and TPG Capital, other defendants including The Goldman Sachs Group, Inc. (GS - Analyst Report), Bain Capital Partners and Silver Lake Technology Management L.L.C. have already settled the case. Notably, only two units of The Carlyle Group LP (CG - Snapshot Report) presently remain part of the litigation, facing a trial on Nov 3, 2014.
Together with recent settlements, this would take the recovered amount to a total of $475.5 million. However, all the settlements await approval of the U.S. District Judge William Young, and are expected to be considered at Sep 4, 2014 hearing. Notably, all the private equity firms that have resorted to settlements till now, have not accepted any wrongdoing.
We believe the early settlement of lawsuits prevent increased litigation overhangs for involved companies, as well as relieve the aggrieved investors of lengthy trails and raised expenses. Nevertheless, investors and other financial institutions bearing the brunt of such faulty practices should be fairly compensated.
Currently, Blackstone carries a Zacks Rank #2 (Buy), while KKR holds a Zacks Rank #3 (Hold).