In a case that could reverberate within the wider private equity industry, an Australian court has reportedly ruled engineering group Bradken had violated market rules in its purchase of Canadian mining company Norcast Wear Solutions from New York private equity firm Castle Harlan.
The case garnered US media attention due to the lightning speed in which Norcast was bought and sold by Castle. In July 2011, Swiss investment firm Pala sold the mining company for $190 million to Castle, only to see the private equity firm sell the company for AUS$202 million (worth some $215 million at the time) seven hours later to Bradken.
Pala claims Castle was used as a private equity middle man to allow Bradken to avoid paying the sort of premium that would normally have been expected of a trade buyer seeking synergies.
The judge ordered Bradken and two of its top executives, chairman Nick Greiner and managing director Brian Hodges, to pay $22.4 million in damages to Pala, according to Australian media reports. Bradken is reportedly planning to appeal the decision.
Pala is also pursuing legal action against Castle Harlan in the US, alleging the firm was aware of its intermediary role. Prior to Bradken’s purchase of Norcast, Grenier sent an email to Hodges describing the transaction as an “essentially risk-free” investment for Castle, according to a November Reuters report.
Calls put out to Castle Harlan, Pala and Bradken were not returned by press time.
The allegations of bid-rigging by Pala come at a time when the US buyout industry faces its own allegations of market manipulation. Last week a US judge narrowed a case alleging some of the world’s top private equity firms colluded on mega-deals made during the credit bubble years of the mid-2000s, ruling that plaintiffs fell short of proving an overarching conspiracy of bid-rigging.