French probe buy-out collusion
By James Mackintosh and Martin Arnold in London
Financial Times: June 7 2007
The French financial regulator is investigating suspected collusion
between hedge funds and private equity designed to force listed
companies to accept a buy-out.
The Autorité des Marchés Financiers is looking at several cases where it
fears hedge funds acted as a front for buy-out firms. The fear is that
activist funds pushed managements into putting companies up for sale,
without disclosing advance agreements to sell stakes to private equity
groups, which would then gain a significant advantage in an auction.
The probe comes at a sensitive time for activist hedge funds and private
equity, which are under political pressure in Europe. Germany has been
trying to persuade the group of eight industrial nations to demand that
hedge funds become more transparent, while politicians and unions across
the continent have called private equity “locusts” and “casino
capitalists”.
Gérard Rameix, general secretary of the AMF, told the Financial Times
that the watchdog was investigating “several specific situations where
we suspect this activity may have occurred”.
But Mr Rameix, head of the investigative branch of the French regulator,
said there was no broad investigation into the practice, which he
described as “a cross between insider trading and market collusion”.
He added that the AMF had so far found “no evidence” that it existed and
said it was “very difficult to prove”. The various investigations are
continuing.
A separate high-profile case against four hedge funds and Deutsche Bank
for alleged insider trading around a 2002 Vivendi bond issue will be
heard by the AMF sanctions committee on Thursday.
The committee’s rapporteur is understood to have recommended the maximum
€1.5m fines on the funds – London’s GLG Partners, Ferox Capital, Meditor
Capital and UBS O’Connor – and a €3m fine for Deutsche. Deutsche and GLG
are appealing earlier fines for alleged insider trading around an
Alcatel bond sale.
European companies have become a favoured target for activists, who
typically buy shares trading cheaply and try to eject entrenched
managements or prod them to change strategy or put themselves up for
sale.
Several hedge funds have privately expressed fears that rivals are
secretly signing deals to sell their shares to a buy-out group before
launching assaults on companies. Private equity groups are often barred
by their investor terms from hostile raids, and try to agree friendly
terms for a takeover to allow due diligence, so a covert hedge fund ally
could prove useful.