Equity Firm Says Goldman Gamed Merger Bid

MANHATTAN (CN) — A large Malaysian private equity firm has accused Goldman Sachs of hiding its tight relationship with the country’s prime minister in order to depress the price of a bid in a bank merger.
Primus Pacific Partners says in its lawsuit that it was betrayed in 2009 when Goldman bank concealed its tight relationship with Malaysian Prime Minister Najib Razak while advising EON Capital, on which Primus has a board seat, to accept a bid by Hong Leong Bank (HLB) to acquire EON.
     The Justice Department currently is investigating potential corruption involving Goldman Sachs and Razak involving hundreds of millions of dollars in misappropriated funds. On July 20 the Justice Department filed several forfeitures seeking more than $1 billion in assets related to the corruption investigation.
     In the 26-page lawsuit, filed July 26 in New York County Supreme Court, Primus alleges that EON shareholders approved the takeover by HLB completely unaware that Goldman had such a close relationship with Razak, whose brother sat on HLB’s board of directors.
     “[A]rmed with the board’s confidential information, aware that the prime minister preferred the approval of the HLB bid by the board, and confident that the board would follow its advice and recommendation, Goldman Sachs set out to win favor with the prime minister by improperly using and disclosing confidential information to HLB,” the lawsuit states.
     As a result, “the price at which HLB acquired EON Capital was hundreds of millions of dollars below fair value,” according to the lawsuit, which also names several Goldman subsidiaries and former Goldman Sachs Managing Director Tim Leissner as defendants.
     Primus is no longer a shareholder in EON Capital, but it now seeks more than $170 million in damages due to Goldman’s alleged corruption.
     In December 2009, HLB announced it had received approval from Malaysian regulators to pursue a hostile takeover bid for EON Capital.
     EON then heard pitches from financial investment and advisory firms, including Goldman Sachs, regarding the deal, the lawsuit states. During Goldman’s pitch, Leissner allegedly said that the firm had no conflicts of interest. Later letters by the firm also fraudulently claimed no such conflicts, the lawsuit states.
     The EON board retained Goldman as its financial advisor on Jan. 4, 2010. After EON’s board had rejected the initial offer, Goldman advised EON to accept HLB’s second offer of $1.7.
     In September 2010 HLB acquired EON. Primus sued EON unsuccessfully in 2010 to scuttle the deal.
     However, according to the lawsuit, Goldman “adjusted the reference valuation metrics downward materially” to pressure EON to accept HLB’s final offer, the lawsuit states. The valuation of the final as 45 percent lower than HLB’s original offer, which Goldman had rejected.
     Goldman Sachs pushed for the deal by using EON’s own confidential information, “including the views of each board member and certain major shareholders with respect to the offer from HBL, the floor price at which board members would approve a sale of EON Capital, and the identity of other potential suitors for EON Capital,” the lawsuit states.
     Two of Nazak’s brothers had close ties to HLB: youngest brother Nazir is chairman and CEO of investment bank CIMB Group, which advised HLB on the deal; middle brother Nazim sat on the board of directors for HLB.
     The corruption probe has since focused on Razak’s funneling of more than $700 million from Malaysia’s sovereign wealth fund, 1Malaysia Development Bhd, into personal accounts. Some of the allegedly embezzled funds were found to have helped fund the movie “The Wolf of Wall Street.” Other funds were used for luxury properties in the United States and Europe, authorities have said.
     Goldman Sachs had arranged two bond offerings for the sovereign wealth fund. U.S. officials are investigating whether Goldman helped Razak launder money through the fund.
     Goldman has been investigating the scandal, as well. The lawsuit also references an anonymous e-mail sent to a Goldman executive in 2010, stating that Goldman Sachs’s team in Malaysia was exposing the firm to legal challenges via the deal. The e-mail spurred on an internal investigation at Goldman Sachs that focused on Leisnner, the lawsuit states.
     Razak has denied the charges of corruption.
     A spokesman for Goldman Sachs said in a statement that the firm would “vigorously contest” the lawsuit.

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