[ by Howard Haykin ]

Federal procecutors and private equity giants like Blackstone Group and Kohlberg Kravis Roberts are sniping at each other over the government charge that perhaps as many as 11 of the largest PE firms worked together - i.e., "COLLUDED" in order to bring down the prices of public companie these investors wanted to acquire and take private.  And then there's the so-called "smoking gun" evidnce that is in the possession of prosecution.  Specifically, prosecutors have taped phone calls that provide clear and undeniable proof  that these giant private investors did in fact arramge to coordinate their efforts - "COLLUDE" in order to ensure that the purchase price of target companies are priced as low as possible.

Deal prices largely fluctuate based on the number of competing bids for the same investment.  But since there can only be one winner, why should these  competitors ramp up the price on all deals, The fact that a firm or firms may "unilaterally" decide that it will step out of the negotiations.  At such a moment, the remaining bidder or bidders are likely to have a clear path to the target company and, with little or no competition, the deal will probably settle at a lower price than had the competing firms stayed in the bidding.

E-Mails Cited to Back Lawsuit’s Claim That Equity Firms Colluded on Big Deals. The Blackstone Group, Kohlberg Kravis Roberts and the Apollo Group are 3 or several longtime rivals that have competed  strenuously to capture multibillion-dollar deals.  Yet, during the past decade, in the midst of a frenetic buyout boom, the competitive levels of these rivals have taken on a lighter approach, accompanied by fewer drawn out auctions for particular investments.  And released emails that will be introduced as evidence in a civil lawsuit accusing the PE firms over COLLUSION charges that substantiate the new cozier terms that these firms apparently agreed upon to compete - but not compete when it's merely counterproductive to their efforts to make a profit.'

• 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, Mr. James sent 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.

And So, The Legal Wrangling Begins.  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 are suspected of colluding to drive down the prices of more than two dozen takeovers of publicly traded companies. Plaintiffs in the case, which was filed in Federal District Court in Boston in 2007, are former shareholders of the acquired businesses.

Much of the 207-page lawsuit had been heavily redacted, but The New York Times brought a motion in August to make the all of the complaint public. A judge ordered the private equity defendants to file an unsealed version of the court papers, leading to the new filing on Wednesday.
"These e-mails are strong signals of anticompetitive behavior," said Darren Bush, an antitrust law professor at the University of Houston. "It is always highly problematic when you have such freewheeling discussions between competitors."

For further details, go to:  [Dealbook, 10/10/12].