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Goldman, Bain Settle Private Equity Club Deal Lawsuit

NEW YORK (The Deal) -- Goldman Sachs Group (GS - Get Report) and Bain Capital Partners LLC Wednesday agreed to settle claims that they colluded to hold down the prices paid to targets in several large leveraged buyouts signed up between 2003 and 2007.

Goldman will pay $67 million and Bain $54 million to resolve the litigation against them in U.S. District Court in Boston pending approval from Judge William Young. Neither defendant admitted wrongdoing in agreeing to settle its piece of Dahl v. Bain Capital Partners, as the case is styled.

The plaintiffs, shareholders in the target companies, continue to pursue their claims against five PE shops: Blackstone Group, Carlyle Group, KKR& Co., Silver Lake Partners and TPG Capital Management. The remaining defendants may now feel more pressure to settle rather than risk going to trial on Nov. 3. Blackstone and Silver Lake had no comment. TPG said, "We continue to strongly dispute the allegations and are confident in prevailing at trial, should one occur."

Robins, Kaplan Miller & Ciresi LLP is representing the plaintiffs along with Scott and Scott LLP and Robbins Geller Rudman & Dowd LLP.

The matter is a holdover from an era in which buyout shops teamed up to complete massive acquisitions via consortium or club deals. In 2006, the U.S. Department of Justice initiated an inquiry into potential collusion by PE shops on such deals, and several private parties sued various PE shops on those grounds. The Police and Fire Retirement System of the City of Detroit and two individuals, all of whom held shares in LBO targets, brought the suit in Boston in December 2007. The initial complaint targeted 17 private equity funds and 27 buyouts.

In a ruling last year, Judge Edward Harrington dismissed some of the claims and required the plaintiffs to focus on allegations that the firms had agreed to not make rival bids for leveraged buyouts already signed up by other firms. The judge allowed claims to proceed on allegedly collusive behavior in eight buyouts.

The judge recognized that PE firms were ambivalent about club deals, which they viewed "as having certain potential drawbacks, including governance confusion, lack of focus and accountability, and a 'group think' mentality, in which conventional wisdom was never challenged," he wrote, but they also "believed that working together provided many benefits, including the ability to complete larger transactions, share expertise, minimize costs, and diversify risk."

Harrington was initially assigned the case but retired at the end of last year. Young, the current judge in the matter, was appointed to the bench by President Ronald Reagan in 1985.

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