Buyout firms accused of conspiring on prices

Kohlberg Kravis Roberts & Co., Carlyle Group and most other major U.S. buyout firms were accused in an investor lawsuit Wednesday of illegally conspiring to hold down the prices they pay when taking companies private.

The suit was filed in federal court in New York by shareholders who claim they were shortchanged because the firms restrained bidding for leveraged buyouts such as the $33-billion takeover of hospital chain HCA Inc., the largest such buyout ever. It alleges that the firms broke antitrust laws by forming “clubs” to make offers, sharing information and agreeing not to outbid each other.

“Investors in the target company are deprived of the full economic value of their holdings and ‘squeezed out’ at artificially low valuations,” says the suit, which seeks class-action status.

Private-equity firms, which have announced a record $425-billion worth of leveraged buyouts this year, are the target of a U.S. Justice Department investigation into possible antitrust behavior. They’ve also come under fire in Europe and the U.S. for burying their portfolio companies in debt while collecting large dividends from them.

The suit, which seeks unspecified damages, resembles a pending case in Manhattan federal court in which 12 brokerages, including Goldman Sachs Group Inc. and Merrill Lynch & Co., of rigging public offerings of tech firms in the late 1990s.