Carlyle to Settle LBO Collusion Case for $115M, Avoids Trail - Analyst Blog

The Carlyle Group LP (CG) was the final private equity firm to settle a lawsuit that accused it of pulling down the prices of leveraged buyouts (LBOs) through collusion before the financial crisis. The company will be paying a settlement amount of $115 million to avoid going to trail.

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 wrongfully depriving investors of billions of dollars.

Originally, 27 LBOs 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 Carlyle, other defendants including Blackstone Group L.P. (BX), Kohlberg Kravis Roberts & Co. L.P. (KKR), TPG Capital LP, The Goldman Sachs Group, Inc. (GS), Bain Capital Partners and Silver Lake Technology Management L.L.C. have already settled the cases. Further, over the last two years, a federal judge dismissed charges against Apollo Global Management LLC, Providence Equity Partners Inc, JPMorgan Chase & Co and Thomas H. Lee Partners LP as defendants in the case.

Notably,  the above-mentioned settlement would take the recovered aggregate amount to $590.5 million. However, all settlements await approval of the U.S. District Judge William Young, and are expected to be considered at the hearing on Sep 4, 2014. None of the private equity firms have accepted any wrongdoing.

We believe early settlements of lawsuits prevent increased litigation overhangs for involved companies, and also relieve the aggrieved investors from lengthy trails and raised expenses. Nevertheless, it is most important that investors and other financial institutions, bearing the brunt of such faulty practices, should be fairly compensated.

Currently, Carlyle carries a Zacks Rank #3 (Hold).