French probe buy-out collusion

[Charles Brown <cbrown@xxxxxxxxxxxxxxxxx>]

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 Autorit? des March?s 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?.

G?rard 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.