A federal judge refused to dismiss a lawsuit accusing private equity firms of colluding to lower the prices of deals during the buyout boom, paving the way for a possible trial, DealBook’s Peter Lattman reports. At the same time, though, Judge Edward F. Harrington of Federal District Court in Boston narrowed the lawsuit in his ruling on Wednesday, suggesting that the case was too broad and had serious flaws.
Both sides found a reason to celebrate the decision. “We are pleased the court has decided that there is no evidence of the overarching conspiracy plaintiffs have pursued for five years,†said Kristi Huller, a spokeswoman for Kohlberg Kravis Roberts, one of the firms named in the suit. A lawyer for the plaintiffs, who are former shareholders of the businesses acquired by the buyout firms, had another view. “Th plaintiffs are very gratified that the court has found that there is clear evidence of the overarching conspiracy,†said the lawyer, K. Craig Wildfang.
The plaintiffs claim that 11 big private equity firms participated in a plot to rig the market for more than two dozen multibillion-dollar takeovers, shortchanging shareholders. The accusations center on “club deals,†in which buyout firms pooled their money to buy companies together. The complaint was filed in 2007 after the Justice Department, which has not brought any charges, began investigating possible price-fixing.
While the judge decided there was enough evidence for the case to survive the private equity firms’ motion to throw it out, he essentially agreed with the thrust of the private equity firms’ argument. “Even where the evidence suggests misconduct related to a single transaction, there is largely no indication that all the transactions were, in turn, connected to a market-wide agreement,†Judge Harrington wro! te. “Rather, the evidence shows a kaleidoscope of interactions among an ever-rotating, overlapping cast of defendants as they reacted to the spontaneous events of the market.â€
SQUEEZING OUT CASH AFTER AN EXIT  | “When the Berry Plastics Group, a container and packaging company, went public last October, it generated up to $350 million in tax savings. But the company won’t collect the bulk of the benefits. Rather, Berry Plastics will hand over 85 percent of the savings, in cash, to its former private equity owners,†Lynnley Browning reports in DealBook. “The obscure tax strategy is the latest technique that private equity firms are using to extract money from their companies, in this case long after the initial public offering.â€
“Buyout specialists are increasingly ollecting continuing payouts from their former portfolio companies. The strategy, known as an income tax receivable agreement, has been quietly employed in dozens of recent offerings backed by private equity, including those involving PBF Energy, Vantiv and Dynavox. While relatively rare, the strategy, referred to as a supercharged I.P.O., has proved to be controversial. To some tax experts, the technique amounts to financial engineering, depriving the companies of cash. Berry Plastics, for example, has to make payments to its one-time private equity owners, Apollo Global Management and Graham Partners, through 2016.â€
VICTORY FOR INVESTOR IN SANDRIDGE FIGHT  | SandRidge Energy reached a settlement deal with TPG-Axon Capital Management, a hedge fund that had been pushing for the removal of the oil company’s chairman and chief executive, Tom L. Ward, DealBook’s Michael J. de la Merced reports. SandRidge said it would expand its board by four seats determined by the hedge fund, adding that it would decide by June 30 whether to remove Mr. Ward. If SandRidge does not fire the chief executive, three of the existing directors will step down and TPG-Axon will name an additional board member, giving the investor majority representation on the board. “Wednesday’s announcements represent a striking victory for TPG-Axon, which had questioned a series of land deals that SandRidge had made with Mr. Ward and his family,†Mr. de la Merced writes. “The hedge fund had also criticized SandRidge for a series of strategic mistakes, leading to a nearly 29 percent decline in the company’s stock price over the last 12 months.â€
ON THE AGENDA  | The Federal Reserve is expected to announce at 4:30 p.m. which banks have the abilit to return money to shareholders. A House Financial Services subcommittee conducts a hearing at 10 a.m. about an assessment by the Government Accountability Office of the Financial Stability Oversight Council and the Office of Financial Research. The producer price index for February is out at 8:30 a.m. Sallie L. Krawcheck, former head of Bank of America’s wealth management division, is on Bloomberg TV at 8 a.m. Jeffrey C. Sprecher, chief executive of IntercontinentalExchange, is on CNBC at 3 p.m. Jacob L. Lew, the Treasury secretary, is on Bloomberg TV at 4:15 p.m. Sheila C. Bair, former chairman of the Federal Deposit Insurance Corporation, is on CNBC at 4:30 p.m.
DIMON AT THE WHITE HOUSE  | Are hackers playing a role in healing Jamie Dimon’s relati! onship wi! th President Obama The JPMorgan Chase chief executive, who turned in recent years from being an ally of the Obama administration to a vocal critic, was among 13 chief executives who visited the White House on Wednesday to discuss cybersecurity, the Bits blog writes. JPMorgan had been attacked by foreign hackers as recently as Tuesday. Brian T. Moynihan of Bank of America was also among the invitees.
SPINOFF OF TIME INC. UNNERVES EMPLOYEES  | Richard Stengel, Time Magazine’s managing editor, acknowledged that it was “sort of put up or shut up time†for Time Inc., which is set to split off from its Time Warner after talks with the Meredith Corporation fell apart. “I think great, let’s really test that hypothesis that people will pay for great content and great journalism. We can now invest our own apital,†he said, Christine Haughney reports in The New York Times. The new company faces some challenges, as circulation and advertising revenue have declined. It is expected to start with $500 million to $1 billion in debt.
Several current and former employees spoke of unease at the magazines, Ms. Haughney writes. “Morale dipped dramatically when the layoffs occurred just a couple of months ago,†a former company executive who is still in touch with many employees said.
In Industrial Deals, Barclays Advances in the Rankings  | So far this year, Barclays ! is ranked! second in the global league tables for advising on deals in manufacturing, aerospace, defense and related fields, Reuters reports. REUTERS
The Case for Shaking Up Hewlett’s Board  | Replacing several directors responsible for H.P.’s past missteps would bring some accountability to the board and ensure an uncomfortable breakup of the company is not pushed aside, Robert Cyran of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS
Outdoor Channel Agrees to Higher Bid From Kroenke  | Outdoor Channel Holdings has accepted a $220.7 million takeover bid from Kroenke Spors and Entertainment, turning down an earlier offer from the media investor Leo Hindery Jr. DealBook »
More Companies Holding Annual Board Elections, Group Reports  | After prompting by shareholders, 46 companies in the Standard & Poor’s 500-stock index have agreed to hold annual elections for all their directors, a corporate governance initiative run out of Harvard Law School said on Wednesday. DealBook »
A $60 Million Pay Package for Nabors Chief  |Â
WALL STREET JOURNAL
UBS Pays Investment Bank Chief $26 Million  | UBS said on Thursday that it had awarded its new investment bank chief, Andrea Orcel, almost 25 million Swiss francs in deferred cash and shares to compensate him for pay he forfeited when leaving Bank of America Merrill Lynch. The amount dwarfs the 8.87 million francs that the bank paid its chief executive, Sergio P. Ermotti, in 2012. DEALBOOK
Goldman to Hold Annual Meeting in Salt Lake City  | Goldman Sachs said its annual meting this year would be in Salt Lake City â€" where the firm has its second-largest office in the United States â€" marking the first time the meeting has been held outside the New York metropolitan area, Reuters reports. REUTERS
Financiers Line Up Behind Candidate for Mayor  | Joseph J. Lhota, a former deputy in the Giuliani administration who is running for New York City mayor, has some well-known Wall Street names among his donors, including Richard D. Parsons, a former Citigroup chairman, and Martin Lipton, a veteran lawyer, Michael Barbaro reports in The New York Times. NEW YORK TIMES
Citi Executive’s Lonely Support of Derivatives Regulation  | Brian Leach, the head of risk at Citigroup, has called for derivatives trading to move to exchanges. “I think I’m the lone voice,†he told The Financial Times. FINANCIAL TIMES
BATS Chief Executive Keeps Calm  | Joe Ratterman, the chief executive officer of BATS Global Markets, is “dedicated to an extreme level of transparency that’s helped BATS do more than survive disaster under his leadership; it’s prospered,†Bloomberg Businessweek writes. BLOOMBERG BUSINESSWEEK
Comerzbank to Raise Capital and Pay Back Bailout  | The moves would reduce the German government’s influence over the bank, but would also dilute current shareholders. DealBook »
Macquarie Hires Executive in Financial Sponsors Group  | The Macquarie Group hired Brian Sauvigne, who was recently head of corporate development at Morgan Stanley, as a managing director in its financial sponsors group, as the Australian firm continues to build that division. NEWS RELEASE
Latin America Still Has Allure for Private Equity  | The number of private equity firms in the Latin American market is higher than ever, even as the dollar value of commitments to the region has fallen, according to the data provider Preqin, The Wall Street Journal reports. WALL STREET JOURNAL
Cinven Raises $6.5 Billion Fund for European Buyouts  |Â
REUTERS
Citadel to Sell Remaining Stake in E*Trade  | The hedge fund Citadel plans to sell its entire 9.6 percent stake in E*Trade Financial, the brokerage company said on Wednesday, ending a five-year relationship. REUTERS
Vodafone Should Seek Sale of Company, Fund Manager Says  | John Hempton of Bronte Capital argues that a sale of Vodafone to Verizon makes more sense than a sale of Vodafone’s stake in Verizon Wireless to Verizon. DealBook »
Owner of German Publisher Said to Move Toward an Exit  | The Swedish buyout firm EQT Partners is contemplating an exit from Springer Science & Business Media, a German academic publisher, with plans to either sell it or take it public, Bloomberg News reports. BLOOMBERG NEWS
Five Oaks Investment Seeks $85.5 Million I.P.O. Â |Â
REUTERS
Cybersecurity Company Raises $23 Million  | Endgame Systems, which provides companies with tools to protect their computer systems in real time, raised $23 million in a financing round led by Paladin Capital, AllThingsD reports. ALLTHINGSD
Former Pimco Executive Files, Then Withdraws, Suit  | A former high-yield bond portfolio manager at Pimco claimed that he had witnessed multiple instances of wrongdoing by the firm’s senior management from late 2008 to early 2009. DealBook »
Witness List Set for Senate Hearing on JPMorgan Trading Loss  | Douglas Braunstein, who was the bank’s chief financial officer at the time of the losses, is scheduled to appear, as is Ina Drew. Jamie Dimon, the bank’s chief, will not testify. DealBook »
Gold Pricing Said to Come Under Scrutiny  | The Commodity Futures Trading Commission is examining whether gold prices are being manipulated in London, according to The Wall Street Journal. WALL STREET JOURNAL
After Financial Crisis, Prosecutors Navigate Tricky Waters  | The dearth of prosecutions since the financial crisis is again stirring controversy, but there is still time for political leaders to hold corporate executives responsible when a company engages in misconduct, Peter J. Henning writes in the White Collar Watch column. DealBook »
3 More Banks to Expand Clawback Policies  | Banks including Citigroup are broadening their policies for clawing back compensation, after pressure from the New York City comptroller’s office, according to The Wall Street Journal. WALL STREET JOURNAL
Dallas Fed Chief Urges 100-Year Bond for Texas  | Richard W. Fisher, president of the Federal Reserve Bank of Dallas, is calling for the state of Texas to take advantage of low interest rates and issue a 100-year bond to finance infrastructure in the state and save money on its debt payments. DealBook »
