BLOOMBERG, October 26, 2012 -- Republican presidential candidate Mitt Romney, as a board member of Staples Inc., voted to set a low price on the stock and create a new class of shares as a “favor” to its co-founder who was involved in a divorce.
Romney, in testimony in 1991 in the divorce case of Staples co-founder Tom Stemberg, said the special class of Staple shares was created because Stemberg “needed a settlement with his wife.”
The testimony, made public yesterday, deals with the investment in Staples by Bain Capital LLC, the private-equity firm Romney co-founded. He addressed the valuation of the company, the value of the stock Stemberg’s wife received in the divorce settlement, and the business relationship between the two men.
The testimony was released by Massachusetts Probate Judge Jennifer Ulwick after a hearing in which Stemberg’s ex-wife urged its disclosure, initially requested by the Boston Globe. At a hearing in Canton, the judge said that while Romney’s testimony would be released, a confidentiality agreement between the ex-spouses remains in effect.
Gloria Allred, a women’s rights lawyer, appeared in court with Stemberg’s ex-wife, Maureen Sullivan Stemberg, and said she was backing a request by the Globe to unseal the documents.
Asked for comment, Andrea Saul, a spokeswoman for the Romney campaign, referred to a statement from Romney’s lawyer, Robert Jones.
“These tabloid charges being shopped by Gloria Allred, one of President Obama’s most prominent supporters, are absolutely false,” Jones, a lawyer with Ropes & Gray LLP in Boston, said yesterday in the statement. “Every time a court has reviewed the allegations of her client over the past 24 years, they have been rejected. There is no new information here.”
At the Republican national convention, Tom Stemberg, 63, spoke on behalf of Romney, the former governor of Massachusetts, who was given his party’s nomination for president in the Nov. 6 election against President Barack Obama.
Stemberg is the co-founder and managing general partner of Highland Consumer Fund, a venture capital fund that focuses on retail and consumer service companies. It is affiliated with Cambridge, Massachusetts-based Highland Capital Partners LP.
Framingham, Massachusetts-based Staples grew with the help of Bain. Romney said when initially presented with the proposal for an office-supply chain in about 1985, “I didn’t think it was a very good idea,” according to the transcript. Later, he said, he was “impressed with the quality of the thinking.”
Romney’s 1991 testimony was over several days during an evidentiary hearing in probate court on a request by Stemberg’s ex-wife to rescind her marital separation agreement.
Bain’s initial investment was 80 cents for each preferred share, according to the transcript, or $1.5 million.
In September 1987 Staples’ board set a share price of 0.1 cent, according to the testimony. Romney, who was on the board, testified that the stock may have been worth $1.30 at the time.
Joseph Walsh, the lawyer for Stemberg’s ex-wife, asked Romney if, by setting such a low price, “you’re in any way violating any fiduciary duty to your company?”
Romney answered, “I don’t believe so.”
“It was my true belief that one could justify 1/10 of one cent as the value of the common stock, but that the stock was probably worth more than that,” Romney testified.
Romney valued the shares of Staples at about $1.50 to $2 a share in late 1987 and early 1988. The lawyer who questioned him said Stemberg’s wife negotiated a sale of her shares at $2.25 to $2.48, according to the transcript.
“In my opinion that’s a good price to sell the securities at,” Romney said, according to the transcript.
In its initial public offering in 1989, Staples opened at 86 cents a share.
Romney also said that a new class of preferred shares was created specifically for Stemberg.
“It was initiated as a favor,” Romney testified. “Tom needed to have a settlement with his wife.” Romney said creating the new shares wasn’t his idea.
Romney was asked whether there “could be a potential lawsuit by common shareholders for suddenly inserting for the benefit of Mr. Stemberg” a class of new shares that had preference over common shares.
“There was a discussion as to what was in the best interests of the common shareholders as well as the other shareholders,” Romney testified. “A specific discussion of a potential lawsuit I don’t recall being raised.”½
Questioned about the valuations of several classes of Staples stock at various times, Romney said, “I’m not great at math when I’m on the stand.”
Tom Stemberg’s lawyer, Brian Leary, told the judge yesterday that Romney’s statements were a “primer” on Staples’ early development. Lisa Arrowood, a lawyer for Staples, said the company didn’t oppose the release of Romney’s testimony.
Allred opposed a confidentiality order that was left in place, telling the judge she wants her client to be able to talk about Romney’s testimony.
“She needs to be able to speak,” Allred said. “She apparently is the only person in the U.S., maybe in the world, who cannot speak aboutGovernor Romney.”
The judge said Margaret Sullivan Stemberg could file a new motion to modify the gag order in the case. Allred said it was “the most comprehensive gag order I have ever seen in my 36 years of practicing law.”
Posted By: Richard Kigel
Friday, October 26th 2012 at 2:11PM
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