Much Ado About Nothing? The Antitrust Implications of Private Equity Club Deals

In May 1976, with merely 120,000 and a few metal chairs left behind from a prior tenant, Kolberg Kravis Roberts & Co. (KKR) opened its doors. Though few people outside Wall Street circles knew of this start-up company, by the 1980s its reputation as a takeover machine brought it notoriety. One can only imagine what went on behind closed doors, but whatever happened, it worked. By 1989, KKR had become the largest client of accounting giant Deloitte & Touche, with General Motors following as a close second. The “Age of Leverage” peaked in 1990 when KKR took over RJR Nabisco. Until 2006, this takeover was the largest in history and is still considered one of the largest ever. The deal almost ruined KKR, yet KKR managed to acquire many other companies in the ensuing years. In late February 2007, KKR and other private equity firms announced another record-breaking deal. An investor group led by KKR and Texas Pacific Group (TPG) purchased TXU Corporation, a Texas-based energy company, for an unprecedented 45 billion. GS Capital Partners, Lehman Brothers, Citigroup, and Morgan Stanley became equity partners at closing. An official statement explained that the new owners planned to have stronger environmental and climate stewardship policies, to invest in alternative energy, and to focus on the electric consumer market by delivering both price cuts and protection. Although a deal of this volume may seem extraordinary, it is only one of the many mega-deals in the realm of private equity, which has become a vital engine for investment in our economy. Generally, private equity is any equity investment that is not freely tradable on public stock markets. A trend contributing to the success of private equity is a strategy known as “clubbing.” Clubbing occurs when at least two buyout firms join forces to purchase a company. Buyout firms cite many reasons for clubbing, such as spreading the risk of a single deal or amassing sufficient capital to acquire a huge corporate target. But clubbing can carry negative consequences as well, especially if companies use the practice to inhibit competition. This concern apparently worried the Department of Justice (DOJ), which in October 2006 launched an inquiry into the potentially anticompetitive behavior of private equity firms—an inquiry that could unearth antitrust violations. The DOJ is examining the possibility of collusion among private equity firms and is trying to discover attempts by clubs to reduce purchase prices. The inquiry started with a two-page letter sent to several of the largest private equity firms seeking voluntary, general information about club deals since January 2003. Although seemingly straightforward, the inquiry presents many complex issues that cannot be easily resolved. Irrespective of the outcome, the private equity industry is paying attention. Private equity will likely need to change if it wishes to continue assembling mega-deals like the TXU deal. This Note addresses the antitrust issues that clubbing raises and argues that the antitrust laws should not restrict clubbing—absent some egregious conduct—and that courts should apply rule of reason analysis rather than per se rules to these sorts of antitrust claims. Part II provides a general background of antitrust law and the various standards that courts apply to private equity clubs. Part III explains private equity and fleshes out what a club deal is and how it works. Part IV discusses antitrust law within the context of joint ventures and sets out the varying standards that could apply to private equity clubs. Part V applies the antitrust analysis to private equity clubbing. Finally, Part VI concludes by suggesting ways to deal with antitrust problems and by examining some of the underlying issues

Much Ado About Nothing? The Antitrust Implications of Private Equity Club Deals

In May 1976, with merely 120,000 and a few metal chairs left behind from a prior tenant, Kolberg Kravis Roberts & Co. (KKR) opened its doors. Though few people outside Wall Street circles knew of this start-up company, by the 1980s its reputation as a takeover machine brought it notoriety. One can only imagine what went on behind closed doors, but whatever happened, it worked. By 1989, KKR had become the largest client of accounting giant Deloitte & Touche, with General Motors following as a close second. The “Age of Leverage” peaked in 1990 when KKR took over RJR Nabisco. Until 2006, this takeover was the largest in history and is still considered one of the largest ever. The deal almost ruined KKR, yet KKR managed to acquire many other companies in the ensuing years. In late February 2007, KKR and other private equity firms announced another record-breaking deal. An investor group led by KKR and Texas Pacific Group (TPG) purchased TXU Corporation, a Texas-based energy company, for an unprecedented 45 billion. GS Capital Partners, Lehman Brothers, Citigroup, and Morgan Stanley became equity partners at closing. An official statement explained that the new owners planned to have stronger environmental and climate stewardship policies, to invest in alternative energy, and to focus on the electric consumer market by delivering both price cuts and protection. Although a deal of this volume may seem extraordinary, it is only one of the many mega-deals in the realm of private equity, which has become a vital engine for investment in our economy. Generally, private equity is any equity investment that is not freely tradable on public stock markets. A trend contributing to the success of private equity is a strategy known as “clubbing.” Clubbing occurs when at least two buyout firms join forces to purchase a company. Buyout firms cite many reasons for clubbing, such as spreading the risk of a single deal or amassing sufficient capital to acquire a huge corporate target. But clubbing can carry negative consequences as well, especially if companies use the practice to inhibit competition. This concern apparently worried the Department of Justice (DOJ), which in October 2006 launched an inquiry into the potentially anticompetitive behavior of private equity firms—an inquiry that could unearth antitrust violations. The DOJ is examining the possibility of collusion among private equity firms and is trying to discover attempts by clubs to reduce purchase prices. The inquiry started with a two-page letter sent to several of the largest private equity firms seeking voluntary, general information about club deals since January 2003. Although seemingly straightforward, the inquiry presents many complex issues that cannot be easily resolved. Irrespective of the outcome, the private equity industry is paying attention. Private equity will likely need to change if it wishes to continue assembling mega-deals like the TXU deal. This Note addresses the antitrust issues that clubbing raises and argues that the antitrust laws should not restrict clubbing—absent some egregious conduct—and that courts should apply rule of reason analysis rather than per se rules to these sorts of antitrust claims. Part II provides a general background of antitrust law and the various standards that courts apply to private equity clubs. Part III explains private equity and fleshes out what a club deal is and how it works. Part IV discusses antitrust law within the context of joint ventures and sets out the varying standards that could apply to private equity clubs. Part V applies the antitrust analysis to private equity clubbing. Finally, Part VI concludes by suggesting ways to deal with antitrust problems and by examining some of the underlying issues

Noteworthy: hurricane season, venture capital, exports

Ike deals severe blow to Texas economy. Texas investment funding slips in 2nd quarter. Latin America, China lead Texas surge in overseas sales.Economic conditions - Texas ; Natural disasters ; Venture capital - Texas ; International trade ; Exports

Assessing the Impacts of Federal Farm Bill Programs on Rural Communities

This report summarizes the state of scientific knowledge on the impact of federal farm and food programs on rural communities in the United States. We focus on the impacts of five specific programs of what is commonly referred to as the “farm bill.” These five include farm commodity programs; farm risk management, insurance, and disaster programs; agricultural conservation programs; food and nutrition programs; and rural development programs. Although there is extensive research on the relative merits and effectiveness of specific rural development programs and policies on rural community outcomes, the impacts of the other four main farm bill programs on rural America have received much less empirical scrutiny

Ubiquitylation, neddylation and the DNA damage response.

Failure of accurate DNA damage sensing and repair mechanisms manifests as a variety of human diseases, including neurodegenerative disorders, immunodeficiency, infertility and cancer. The accuracy and efficiency of DNA damage detection and repair, collectively termed the DNA damage response (DDR), requires the recruitment and subsequent post-translational modification (PTM) of a complex network of proteins. Ubiquitin and the ubiquitin-like protein (UBL) SUMO have established roles in regulating the cellular response to DNA double-strand breaks (DSBs). A role for other UBLs, such as NEDD8, is also now emerging. This article provides an overview of the DDR, discusses our current understanding of the process and function of PTM by ubiquitin and NEDD8, and reviews the literature surrounding the role of ubiquitylation and neddylation in DNA repair processes, focusing particularly on DNA DSB repair.J.S.B. is funded by the Wellcome Trust Clinical Fellowship (grant no. 094794/Z/10/Z). Research in the Jackson laboratory is funded by Cancer Research UK programme grant C6/A11224, the European Research Council and the European Community Seventh Framework Programme grant agreement no. HEALTH-F2-2010-259893 (DDResponse). Core funding is provided by CRUK (C6946/A14492) and the Wellcome Trust (WT092096). S.P.J. receives his salary from the University of Cambridge UK, supplemented by CRUK.This is the final published version. It first appeared at http://rsob.royalsocietypublishing.org/content/5/4/150018