Private Equity Alert
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Private Equity Alert March 2008 District Court Dismisses Antitrust Suit Against Weil News Private Equity Bidders n Weil Gotshal was nominated as Law Firm of the Year by Buyouts By Carrie Anderson ([email protected]), Jeff White ([email protected]) Magazine for our private equity work and Katherine Ambrogi ([email protected]) n Weil Gotshal received the Financial In late February, the U.S. District Court for the Western District of Washington at Times and Mergermarket 2007 M&A Award for Law Firm of the Seattle dismissed an antitrust lawsuit against two private equity firms that jointly Year in Central & Eastern Europe acquired a publicly traded corporation. In rejecting the claim that the agreement to jointly acquire the target was an unlawful restraint of trade in violation of U.S. n Weil Gotshal advised Getty Images Inc. in connection with its federal antitrust laws, the decision provides some clarification for private equity $2.4 billion public-to-private sale firms who desire to form bidding consortia to pursue acquisitions. to Hellman & Friedman The Allegations n Weil Gotshal advised Hg Capital in its £120.5 million sale of Clarion In Pennsylvania Avenue Funds v. Edward J. Borey, No. C06-737RAJ (W.D. Wash. Feb. Events Holdings Limited to Veronis 2, 2008), a shareholder of WatchGuard Technologies Inc. (“WatchGuard”) alleged Suhler Stevenson that Francisco Partners L.P. (“FP”) and Vector Capital Corporation (“Vector”) entered n Weil Gotshal advised OK Hockey into an unlawful conspiracy and agreement to restrain trade in violation of Section LLC in connection with its of the Sherman Act when they agreed to jointly acquire WatchGuard. acquisition of the Tampa Bay Lightning hockey team The court explained that while fifty parties expressed interest in WatchGuard, the n Weil Gotshal advised Gores Group field of potential suitors ultimately was narrowed down to FP and Vector. The two in connection with the unsolicited private equity firms each made more than one formal bid and, on June 26, 2006, proposal by Aquest Systems Corp. FP bid $4.60 per share and Vector bid $4.65. and Gores Group to acquire Asyst Technologies Inc. in a $427 million The plaintiffs alleged that following these June 26 bids, Vector agreed to stop going private transaction pursuing WatchGuard in order to allow FP to make a lower bid. Shortly thereafter, n Weil Gotshal advised GE Capital FP lowered its bid to $4.25 per share, and WatchGuard’s board accepted the offer. in connection with its $1.1 billion In August, Vector announced that it had agreed to fund half of FP’s acquisition of acquisition financing for the WatchGuard in exchange for a 50% interest in the company. acquisition by Hellman & Friedman of Goodman Global, Inc. The complaint alleged that the agreement between Vector and FP was a per se n Weil Gotshal advised Lindsay violation of Section of the Sherman Act and sought treble damages, costs, and Goldberg in connection with its fees from the defendants. investment in Duff Capital Advisors, a new asset management and The Court’s Decision advisory business In dismissing the plaintiff’s antitrust claim, the court found that they had not stated a proper claim under Section of the Sherman Act. For purposes of the motion to dismiss, the court noted that it accepted as true the allegation that Vector and FP agreed to fix the offer price for FP, and that, as a result, WatchGuard shareholders received less consideration for their shares than if Vector and FP had continued to compete. Private Equity Alert March 2008 First, the court found that plaintiffs bidding contest rather than on the how the Department may approach had not alleged conduct that is per se entire universe of possible bidders that the analysis. unlawful – meaning that the conduct might top FP’s and Vector’s bids Nevertheless, the Pennsylvania Avenue would be unlawful, regardless of any throughout the corporate control Funds court recognized that agree- purported justification – under the contest. The court stated that “[t]he ments among private equity firms in a antitrust laws. The decision stated that illusion of market power arose not contest for corporate control are not, no court has applied the per se rule to from Defendants’ anticompetitive in general, anticompetitive. The court antitrust cases involving contests for conduct, but from the lack of market noted that in some cases, bidders corporate control. interest in WatchGuard.” combining forces actually can By finding that the plaintiffs had not promote competition, rather than This decision provides some stated a claim under Section of the suppress it. For example, joint bids Sherman Act, the court declined to may allow bidders with less available clarification for private decide whether the securities laws pre- capital to participate in a contest for equity firms who desire to empted the application of the antitrust corporate control where they otherwise form bidding consortia to laws to the facts of the case. Instead, might not. In addition, joint bids may the court stated that while the SEC facilitate the spreading of risk, thereby pursue acquisitions. may require the disclosure of bidding enabling a bid that might not agreements among suitors of a target otherwise occur. Private equity bidders company, it is unclear whether the SEC always should assess the extent of such After determining that the alleged has the authority to regulate the terms procompetitive reasons when deciding conduct would not be considered and existence of such agreements. whether to submit a joint bid. per se illegal, the court found that the plaintiffs failed to allege a Section Practical Implications Another important factor that the violation under a rule of reason court considered was the alleged While Pennsylvania Avenue Funds analysis. The court’s decision stated relevant market. In Pennsylvania generally has been considered a that the plaintiffs had not demon- Avenue Funds, the court found that victory for private equity firms, the strated that FP and Vector had market plaintiffs had not successfully alleged court’s decision is tailored to the power in the alleged relevant market that FP and Vector had market power particular facts of the case and does for corporate control over Watch- in the market for corporate control. not provide a carte blanche for so- Guard. In fact, the court noted that as The court noted that in this relevant called “club deals”. For instance, other many as fifty suitors expressed some market, not only could any other unrelated cases are pending in the level of interest in the company, and potential suitor have made a topping District of Massachusetts that also that Vector and FP’s alleged “stran- bid, but that WatchGuard’s share- allege club deals violate the antitrust glehold” over WatchGuard was only holders could have rejected the laws. With a different complaint, that the result of all the other potential merger had they believed the offer court may ultimately make different suitors refusing to make bids. price was too low. conclusions. Further, it is unknown According to the court, the plaintiff what the status is of the previously shareholders incorrectly focused their reported inquiries by the Department See Finnegan v. Campeau Corp., 95 F.2d 824 (2d Cir.990); In re Lukens Inc. S’holders Litig., allegations on the final stages of the of Justice into consortium bidding or 757 A.2d 720, 726 (Del. Ch. 999). Weil, Gotshal & Manges LLP 2 Private Equity Alert March 2008 Boston James Westra Back Issues of Private Equity Alert are available online at www.weil.com +1-617-772-8377 Recent Articles: Budapest David Dederick Ignorance of the FCPA is No Excuse +1-361-302-9100 PBGC Ruling Extends Control Group Liability to Private Equity Fund Dallas Glenn West Private Equity Market – The Good, the Bad and the ? +1-214-746-7780 144A Equity Offerings – Potential New Liquidity Option for Sponsors Frankfurt Recent Securities Law Amendments May Increase Sponsor Liquidity Gerhard Schmidt +49-69-21659-700 Shopping for Distressed Companies Hong Kong Sir David Walker Publishes Guidelines for Disclosure and Transparency in Akiko Mikumo Private Equity +852-3476-9008 A Rock and a Hard Place Peter Feist +852-3476-9100 The Pre-Budget Report – the UK Private Equity Industry Heaves a Collective Sigh of Relief London Michael Francies Opportunistic Purchases of Portfolio Company Debt +44-20-7903-1170 Qualifying as an Excluded Party in a Go-Shop – Can You Wake Up Late But Still Say Marco Compagnoni You Were On Time? +44-20-7903-1547 Congress Turns its Attention to the Taxation of Investment Funds and Sponsors Munich Gerhard Schmidt Going Semi-Private +49-89-242430 The Great Pushback New York Barry Wolf Winning Management’s Vote – Alternative Approaches to Equity Compensation +1-212-310-8209 FTC Heightens Antitrust Scrutiny of Private Equity Investments in Overlapping Doug Warner Companies +1-212-310-8751 Private Equity in Brazil: Opportunities and Challenges for Foreign Investors Paris David Aknin Lessons from the Front +331-44-21-9797 Private Equity Market – The Best of Times Prague SEC Proposes New Rules Affecting Private Equity Sponsors Karel Muzikar +420-2-2140-7300 Fortress IPO - Start of the New New Thing? Providence Go-Shops: Are Sponsors Giving Away the Store? David Duffell +1-401-278-4700 Private Equity Alert is published by the Private Equity Group of Weil, Gotshal & Manges LLP, Shanghai 767 Fifth Avenue, New York, NY 10153, +1-212-310-8000. The Private Equity Group’s practice Steven Xiang includes the formation of private equity funds and the execution of domestic and cross-border +86-21-6288-1855 acquisition and investment transactions. Our fund formation practice includes the representation Silicon Valley of private equity fund sponsors in organizing a wide variety of private equity funds, including Craig Adas buyout, venture capital, distressed debt and real estate opportunity funds, and the representation +1-650-802-3020 of large institutional investors making investments in those funds.