1. The Carlyle Group
The Carlyle Group was eyeing a handsome profit when it agreed last August to sell steel pipe manufacturer John Maneely to Russia's Novolipetsk Steel for $3.5 billion, more than six times what it paid two years before. But after the struggling Novolipetsk tried to stall the deal and get a lower price, Carlyle filed suit in New York, coming away with a $234 million settlement.
The planned acquisition of Canadian telecoms company BCE for C$52 billion by a group including Providence Equity Partners, Madison Dearborn Partners and Merrill Lynch Global Private Equity would have made it the largest leverage buyout ever. But when the deal was cancelled last December due to concerns about the company's solvency, BCE filed suit against the consortium over a C$1.2 billion break-up fee.
In June 2008 Apollo Global Management portfolio company Hexion tried to walk away from a proposed $10.6 billion merger with chemicals manufacturer Huntsman, arguing that an ‘adverse material effect’ had occurred since the deal was negotiated. A Delaware court subsequently found against Apollo, with the deal terminated in December for $1 billion.
In 2004 Cerberus partnered with Sun Capital to buy retail chain Mervyns for $1.2 billion, before selling its stake in the company to Sun in 2007. Amid the depressed retail market, Mervyns became one of 36 private equity-backed companies to file for Chapter 11 in 2008. But the retailer blamed Sun and Cerberus for its woes, claiming in a lawsuit that the firms “siphoned” around $1.2 billion of its real estate assets to leverage the buyout and then leased those assets back to Mervyns at a nearly 90 percent hike in rents.
5. Levine Leichtman
In early April Levine Leichtman filed its third lawsuit in six years, this time al leging that Apol lo Global Management made false statements about the health of now-bankrupt portfolio company Linens 'n Things before Levine made a loan to the retailer.
6. Saul Fox
Saul Fox and W. Dexter Paine left KKR to found buyout shop Fox Paine & Co. in 1997. Fox elected not to participate in fundraising for the firm's third fund in 2005, with the two sides drawing up an agreement allowing him to continue in his role as chief executive of the previous funds. But after feeling increasingly marginalised from the firm's operations, Fox filed suit for breach of contract, with Fox Paine rebranded as Paine and Partners following a settlement.
7. Maurice Tchenio
Although he helped found Apax Partners with Ronald Cohen and Alan Patricof in 1976, Maurice Tchenio found himself suing his former partners late last year over profits and management fees that were allegedly withheld on five European investments. As the chairman of Apax's French arm, which invests its own pool of money while the other Apax offices invest through a combined fund, Tchenio has alleged that the firm was “unjustly” withholding profits from him.
8. TH Lee
TH Lee looked to have made a good investment when it took commodities broker Refco public in 2005 and nearly tripled the value of its original $2.4 billion investment. However, when it was revealed that Refco executives had transferred hundreds of millions in losses to a holding company, Refco's stock price plummeted and the firm filed for bankruptcy. TH Lee eventually lost $245 million in the debacle, and sued its auditor and legal advisers to recoup the damages.
Former Opportunity Asset Management founder Daniel Dantas (left) was once considered one of Brazil's best asset managers. But in the years since forming the largest private equity fund in Brazil with Citigroup's Citicorp Venture Capital in 1997, Dantas was accused of hiring a US private investigator to dig up dirt on a rival as well spying on politicians and businessmen. Citigroup initially backed its partner, but after subsequently suing him for $300 million, the two sides settled in April 2008.
Very few lawsuits in private equity have involved GPs suing their LPs. That may be changing however, as New York-based firm CapGen in March filed suit against two of its smaller limited partners – Chalice Fund and WK CG Investment – over their failure to make their most recent capital contributions (see also p. 40).