The U.S. District Court for the District of Massachusetts recently limited the scope of a proposed shareholder class action against a number of private equity firms that participated in buyer consortia (Kirk Dahl et al. v. Bain Capital Partners LLC et al., Case No. 1:07-cv-12388 (D. Mass. Mar. 13, 2013). Plaintiffs, shareholders of 27 companies acquired by the buying “clubs” from 2003 to 2007, allege that the private equity firms conspired to hold down the prices paid for the acquisition targets. Among the defendants are Bain Capital LLC, KKR & Co. LP, the Carlyle Group LP, and other prominent private equity firms.

The court’s decision criticized plaintiffs for making broad claims of a conspiracy based on evidence of friendly relationships among executives of the private equity firms and the fact that losing bidders were sometimes invited by winning bidders to form bidding clubs. Instead, the court narrowed plaintiffs’ conspiracy claim to allege only that rival firms were prohibited from “jumping” each other’s deals or submitting competing bids once the agreements were made public.

This case was first filed in 2007, when some firms disclosed that the Department of Justice was investigating their activity. A similar case was dismissed in 2008 (Pennsylvania Avenue Funds V. Borey, et al., Case No. C06-1737RAJ (W.D. Was. Feb. 21, 2008)). There, the plaintiff, a shareholder of the target, alleged that at the end of the bidding process, the two previously rival bidders conspired to withdraw one of the bids and then substantially lower the remaining bid. In dismissing the complaint, the court held that the defendants’ conduct was not unlawful per se under the antitrust laws and that plaintiff’s claims did not satisfy the rule of reason analysis based in part on facts specific to target. (For more information on this case, please see our earlier publication, “Court Dismisses Antitrust Challenge to Joint Bid in Corporate Acquisition.”)

Although the court dismissed some of plaintiffs’ claims in the current case, the court allowed the case to proceed, illustrating the need to exercise extreme caution in connection with the formation of bidding consortia and related conduct in the context of auction processes. Parties considering a joint bid should assume that bids could be reviewed under the antitrust laws. Parties can reduce their antitrust risk by engaging in joint bids for pro-competitive reasons, such as allocating risk or pooling financial resources together, and not just to depress the price to be bid for the target.