KKR & Co. L.P. (NYSE:KKR) and Blackstone Group L.P. (NYSE:BX) are amongst 11 private equity firms accused of colluding in takeover bids to drive the stock prices of targeted public companies lower. The case traces corporate emails between KKR co-founders, George R. Roberts and Henry Kravis, and Blackstone president Hamilton E. James, detailing conversations between the two firms that suggests a possible collusion in a deal that saw Blackstone acquire technology giant, Free-scale Semiconductor, for around $18 billion.
According to Dealbook, Mr. James is alleged to have written an e-mail to colleagues saying “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,” and two days later, he emailed, George R. Roberts, telling him, “we would much rather work with you guys than against you—together we can be unstoppable, but in opposition, we can cost each other a lot of money”. Mr. Roberts replied, “Agreed”.
The emails were revealed in a court filing on Wednesday in a civil, antitrust lawsuit filed against 11 of the world’s largest private equity firms, accusing them of conspiring to drive down the prices of more than two dozen takeovers of publicly traded companies, noted the New York Times Dealbook.
This comes as a surprise to many since KKR and Blackstone have long been fierce rivals in the private equity industry. Notwithstanding, over the last decade, especially during the period leading towards the global financial crises of 2008/2009, it has been established that the two multi billion private equity firms along with others and including Mitt Romney’s Bain Capital, colluded in a series of takeovers, which they ended up acquiring at very low prices.
Darren Bush, an antitrust law professor at the University of Houston, is quoted as saying, “these e-mails are strong signals of anticompetitive behavior—it is always highly problematic when you have such freewheeling discussions between competitors”.
Nonetheless, the private equity firms are denying the claims. Blackstone spokesman, Peter Rose is quoted saying, “Blackstone and K.K.R. have since competed intensely many times and have completed only a single deal together in the past six years,” stressing that the Freescale deal was competitive, which resulted in the firm paying a generous price for the tech giant.
The plaintiffs, “make the preposterous claim that the entire private equity industry came together under a master plan to decide which firms would be permitted to acquire any particular public company,” said KKR spokeswoman Kristi Huller. “KKR competes fiercely to find the best deals and the best companies for our investors. The plaintiffs do not challenge the perfectly, legitimate practice of club deals but instead make the preposterous claim that the entire private equity industry came together under a master plan to decide which firms would be permitted to acquire any particular public company.”
The private equity industry has been in the limelight in the recent past, given that one of the presidential candidates, Mitt Romney, earned his massive fortune from the industry. Romney has been referring to his success in the industry to justify his leadership qualities, while Democrat Barack Obama has been using the industry to exploit Romney’s weaknesses in en-route to the presidential race.
Other major private equity companies involved in the saga include, Carlyle Group LP (NASDAQ:CG), and Apollo Management Group, which led the takeover of some the country’s iconic companies, including the world’s largest casino operator (Caesars Entertainment), hospital chain (NYSE:HCA), and lodging company (Hilton Hotels). The financiers of these takeovers, were none other but the Nation’s largest financial institutions, including JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc. (NYSE:C).