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Thursday, November 16, 2006

Will The Companies Bought By Private Equity Get Turned Back To The Shareholders

A novel class action suit is brewing. Shareholders in several public companies take private by big private equity firms like Blackstone and KKR say that these firms conspired to get good prices in the buy-outs. HCA, Harrah's and Univision are mentioned in the court documents and the suit is based, in part, on an investigation that the Justice Department is doing into potential cooperation among the large private equity operations.

If the plantiffs prevail or get far enough along to force a settlement, one of two things could happen. The private equity firms could pay shareholders a fee between the "fair value" of the public companies and what they paid for them as they were taken private. Or, they could give the companies back to the shareholders and take back the money they paid for the buyout.

Most shareholders would probably just like a little more money per share, but the private equity guys may not see it that way.

If a company is turned back to shareholders, they may do better over time. Any one of these companies could have a few good years and the share prices might rise. Riches for all.

On the other hand, any one of these companies could have a few bad years. Or, the stock market could take a sharp downturn. Then shareholders would lose buckets of money. Of course, then they could sue the management.

Note to shareholders of public companies being taken private: take the money and run.

Douglas A. McInyre can be reached at He does not own securities in companies that he writes about.

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