HCA Shareholders Allege Bain Capital, Other Private Equity Firms Colluded in Buyout

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Shareholders of Nashville, Tenn.-based Hospital Corporation of America and several other companies have filed a lawsuit against Bain Capital and several private equity firms, alleging the private equity firms cost shareholders billions in a bid-rigging conspiracy, according to a report in The Tennessean.

Last week, The New York Times analyzed court documents and internal emails that were brought against Bain, Goldman Sachs, Blackstone Group, KKR & Co. and others. The lawsuit alleges Bain and the other firms artificially held down the sales prices by establishing caps for roughly two dozen companies, resulting in billions of dollars of lost dividends. Republican president candidate Mitt Romney founded Bain Capital but was not at the firm during the time frame (2003 to 2007) of the alleged bid-rigging.

The leveraged buyouts at the heart of the lawsuit include companies such as Neiman Marcus, Toys "R" Us, AMC Theatres and HCA, the largest for-profit hospital company in the country. In 2006, KKR, Bain, Merrill Lynch and many family members of HCA co-founder Tommy Frist Jr., MD, completed the leveraged buyout of HCA for roughly $32 billion, a national record at the time.

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HCA's shareholders alleged they lost out on $1.6 billion, based on evidence of other bids in the court documents, and they argued the bidding private equity firms eventually colluded to keep the final price artificially low. Lawyers for the private equity firms have said there was no wrongdoing, according to the report.

HCA has bounced between private and public ownership several times in its history. When the hospital operator went private in 2006, the report said many of the private equity firms made "sizable profits and were paid dividends," some nearly doubling their investment. When HCA went public in 2011, its initial public offering was one of the largest private equity-backed IPOs in history.

HCA officials said the 2006 sale "was handled properly" and was in the shareholders' best interest. "The company is not a party to the [federal] litigation and, as a result, does not believe any further comment is appropriate at this time," HCA spokesperson Ed Fishbough said in The Tennessean report.

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