Goldman Sachs Group and Bain Capital Partners will pay $121 million to settle accusations that they illegally drove down the prices of companies they were taking over in the leveraged-buyout frenzy of the mid-2000s.
It was a period when private equity firms were gobbling up public companies in humongous multibillion-dollar takeovers. The 2007 litigation, along with a Department of Justice investigation, fired a shot into Wall Street's party.
Goldman will pay $67 million, and Bain will pay $54 million. They are the first defendants to settle in the antitrust class-action suit led by Minneapolis-based Robins, Kaplan, Miller & Ciresi. Five defendants remain — Blackstone Group, Carlyle Group, Kohlberg Kravis Roberts & Co., Silver Lake Technology Management and TPG Capital Management — and a trial is set for Nov. 3 in Boston.
"We think that the fact that two of the leading players in the industry have determined to settle the case for a substantial sum of money indicates that our case is strong and we look forward to going to trial," said K. Craig Wildfang, co-chairman of the antitrust team at Robins, Kaplan, Miller & Ciresi and colead counsel for the plaintiffs.
Goldman Sachs, based in New York City, did not return requests for comment. Boston-based Bain said it did nothing wrong.
"The court never cited any evidence — no document, no witness, no meeting — tying our firm to any of the alleged claims. We continue to believe the case is meritless and baseless, but ultimately determined that it was best for our investors and our firm to put this matter behind us in light of the costs and distraction of six years of litigation," said Bain spokesman Ernesto Anguilla.
The suit was filed on behalf of former shareholders of a number of companies that were bought out between 2003 and 2007. One of the lead plaintiffs is Kirk Dahl of Stillwater, who was a shareholder in Freescale Semiconductor Inc.
The former shareholders accused the private equity firms, which had formed bidding clubs, of abusing their market power by conspiring to rig artificially low purchase prices for companies they were buying, paying people less for their shares than they should have. Attorneys for the plaintiffs estimate that prices were deflated by 15 to 20 percent.
Such bidding clubs or teams have since fallen out of favor.
The initial litigation covered fewer than 10 buyout deals: PanAmSat Corp., SunGard Data Systems Inc., Neiman Marcus Group Inc., Aramark Corp., Kinder Morgan Inc., HCA Holdings Inc. and Freescale Semiconductor Inc. But the scope expanded to include about 27 buyouts, each worth at least $1 billion.
Last year, U.S. District Judge Edward Harrington in Boston narrowed the case to focus on alleged collusion following the announcement of the deal, as opposed to before.
Harrington has since retired, and the case is being handled by U.S. District Judge William Young.
Wildfang was colead counsel for U.S. retailers in last year's historic $7.25 billion settlement with Visa, MasterCard and the card-issuing banks over swipe fees.