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Lawyers Eye Private Equity Deals

A class-action suit is filed alleging collusion between bidders.

The class-action lawyers are not wasting any time trying to sink their teeth into the nation's biggest private equity firms.

Just a few weeks after federal prosecutors opened an informal inquiry into allegations of anticompetitive bidding practices in leveraged corporate buyouts, a New York law firm has filed the first lawsuit on behalf of investors who claim they got ripped off by the private equity crowd.

But the lawsuit, filed Wednesday in New York federal court, contains few specifics to support its main allegation that private equity firms have been engaged "in an illegal scheme and price-fixing conspiracy'' to keep a lid on the price for taking a company private.

The 17-page complaint filed by the law firm Wolf Haldenstein Adler Freeman & Herz mostly reiterates media reports about the Department of Justice antitrust investigation. Still, the lawsuit could be a harbinger of things to come, as the class-action bar smells blood in the water, especially in light of all the big private equity-sponsored buyouts this year.

The Justice Department investigation is in its early stages and it doesn't appear prosecutors are focused on any one particular deal. The government antitrust probe is focusing mainly on so-called club deals, in which several private equity firms get together to buy out a company. Government lawyers are trying to determine if these club deals are a way for private equity firms to control the bidding process by offering rival firms a chance to co-invest in other deals.

The allegation is that the resulting lack of competition keeps the takeout price for a company relatively low.

So far, the government has sent letters seeking information to at least four private equity firms: Carlyle Group, Clayton Dubilier & Rice, Kohlberg Kravis Robert, and Silver Lake Partners. The private equity arm of

Merrill Lynch


also has received a letter from the government.

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The class-action suit names all five of those firms as defendants, as well as six other private equity firms.

The named plaintiffs in the lawsuit claim they were shareholders in three companies that recently were the subject of big leverage buyout proposals:





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