(Bloomberg) — The US Justice Department sued private equity firm KKR & Co. for allegedly withholding documents during government-required merger reviews.
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Antitrust attorneys filed a civil complaint in federal court in Manhattan alleging KKR failed to comply with the merger disclosure requirements of the Hart-Scott-Rodino, or HSR Act, on at least 16 deals. The transactions were valued at a total of more than $24.7 billion, according to a Bloomberg tally of takeovers cited by the complaint.
The government is seeking at least $650 million in civil penalties for the violations.
KKR also filed a lawsuit Tuesday against the Justice Department and the Federal Trade Commission in federal court in Washington, calling the government’s actions politically motivated and seeking an order finding that it didn’t violate the law.
Settlement discussions between the private equity firm and the government had been ongoing for months but failed to produce an agreement.
The lawsuit reflects the Biden administration’s stepped up antitrust agenda and focus on the private equity sector. Both the Justice Department and the FTC have raised concerns about the competitive harm caused by private equity business practices, including so-called roll ups of multiple companies in a single sector and interlocking board seats. The case is the largest enforcement action against a company over merger review filings.
The litigation is one of the final acts of the DOJ’s antitrust division during the Biden Administration. The case will now fall under Gail Slater, President-elect Donald Trump’s pick to head up antitrust enforcement at the Justice Department once he takes office.
Both the Justice Department and the FTC police the HSR Act and can fine companies more than $50,000 per day for failing to report a deal or closing one before a review is final. In addition to a notification form, the law requires companies undertaking mergers to submit studies, analyses and reports prepared for the executives or board of directors about a deal.
An Existential Issue
Justice Department officials in recent years have foreshadowed that a case like this could be filed, saying publicly that they believe companies are at times not fully complying with their obligations under the law. KKR’s conduct “threatens the integrity” of the merger review system, the government said in its complaint.
“KKR’s rinse-and-repeat failures to provide complete and accurate information about its mergers and acquisitions were systemic,” said Doha Mekki, the Justice Department’s acting antitrust chief.
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“Rather than comply with the law, and despite repeated sworn certifications of its compliance, KKR and its executives systematically flouted the requirements of the HSR Act,” the department filing said, failing to make “complete and accurate pre-merger filings at least 16 separate times.”
KKR also allegedly altered documents in eight deals, according to the DOJ. “KKR’s executives and employees ordered or made alterations to the business documents filed including in some instances information about the competitive implications of the proposed transaction,” the complaint said.
Among the deals in which documents were allegedly altered was the $1.1 billion acquisition of a music-rights portfolio from Kobalt Capital, which owned the copyright of thousands of songs from such artists as The Weeknd, Stevie Nicks, and Childish Gambino.
“KKR repeatedly evaded legally-mandated scrutiny of its investment business, which allowed it to close potentially anticompetitive transactions without proper review by the antitrust agencies, review that should have been informed by relevant documents and information,” the DOJ said in the complaint.
Deals Under Scrutiny
Other deals at issue included KKR’s $6.9 billion takeover of mobile app analytics firm AppLovin Corp. and Therapy Brands, which makes software for therapists, which the private equity firm bought in 2021 for $1.25 billion, according to the complaint.
In response, KKR called the government’s suit politically motivated, saying it had negotiated in good faith with the government for more than two years.
“Over the course of our discussions, it became clear that the outgoing political leadership of the antitrust division was mis-characterizing our actions and overstepping its statutory authority,” said Kristi Huller, a KKR spokesperson.
KKR alleged the complaint is “massively disproportionate” to previous violations of the merger law and is a result of the agency “pursuing an ideological agenda that targets the private equity industry.”
“The sole purpose of the antitrust division’s threatened actions is to make an example of KKR and thereby chill merger and acquisition activity by imposing strict liability for alleged non-compliance with a confusing and at times contradictory web of rules and requirements,” KKR said in its own lawsuit against the Justice Department.
KKR is also seeking a ruling that the the civil penalties at issue in the DOJ’s case are unconstitutionally high.
–With assistance from Ryan Gould.
(Updates with details from complaint.)
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