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Court releases Romney’s testimony

Called as witness in 1991 lawsuit over divorce

Mitt Romney addressed a campaign rally Thursday in Worthington, Ohio.

associated press

Mitt Romney addressed a campaign rally Thursday in Worthington, Ohio.

CANTON — Mitt Romney testified under oath in 1991 that the former wife of Staples founder Tom Stemberg got a fair deal in the couple’s 1988 divorce, even though the company shares Maureen Sullivan Stemberg received were valued at a fraction of Staples’ stock price on the day of its initial public offering only a year later.

At the time the Stembergs split, Romney suggested, there was little indication Staples’ value would soon skyrocket.

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Romney’s testimony in a post-divorce lawsuit brought in 1990 by Sullivan Stemberg was unsealed on Thursday in Norfolk Probate and Family Court at the Globe’s request. Sullivan Stemberg sued unsuccessfully to amend the couple’s financial agreement after Staples went public in 1989 and closed its first day of trading at $22.50 per share.

Stemberg left his wife in February 1987, and the divorce was finalized in July 1988. Before the official split, the couple negotiated an agreement in which Sullivan Stemberg got 500,000 shares of Staples stock, which Stemberg valued at $2.25 per share.

Sullivan Stemberg also kept the couple’s Dedham home, worth $690,000 at the time, and in February 1988 sold 175,000 shares of Staples stock at $2.25 per share -- before it went public -- to pay off the mortgage. She sold another 80,000 shares two months later, at $2.48 per share.

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“In my opinion, that’s a good price to sell the securities at,” Romney, now the Republican nominee for president, testified in June 1991. After that, the number of Sullivan Stember’s shares shrank to 81,667 due to a three-for-one reverse stock split just before Staples had its initial public offering.

On April 28, 1989, the company made its initial public offering at $19 per share and ended its first day at $22.50. This came barely a year after Sullivan Stemberg’s sale of more than half of her shares at less than $2.50 a share (pre-split).

The closing price made Staples, which had 23 stores at the time, worth more than $200 million. Stemberg, holding 567,000 shares, claimed $12.8 million in company stock.

Sullivan Stemberg’s remaining shares were worth $1.8 million after the IPO, but she had lost out on more than $1 million by selling when the stock was still private in 1988.

“If she had just hung on to [her] stock she would be one of the wealthiest women in Boston today,” Stemberg told the Wall Street Journal in 1997.

The Globe filed a motion on Oct. 15 to unseal Romney’s testimony, which was impounded along with all other case files from the Stembergs’ 10-year legal battle. Parties in the case also signed a confidentiality agreement. The Globe’s motion included a petition to amend the confidentiality agreement to allow parties in the case to speak publicly about Romney’s testimony, but the newspaper dropped the request on Thursday when Stemberg, who had opposed the Globe’s request to unseal the testimony, withdrew his objection.

Gloria Allred, the lawyer for Sullivan Stemberg, argued vigorously for her client’s right to address Romney’s testimony publicly, but Judge Jennifer Ulwick ruled that because the Globe was no longer petitioning to modify the confidentiality order and was satisfied by the release of Romney’s testimony, Sullivan Stemberg would have to bring a separate motion to amend the order.

Allred indicated that she would do so and at a news conference after the hearing accused the Globe of a “double cross” because the paper stopped its push to amend the confidentiality order — her client’s primary interest.

“The Globe’s only interest all along, as should have been clear to all parties, was to obtain the transcript of a presidential candidate’s testimony,” Globe editor Martin Baron said in a statement. “We wanted to read it to see what was there, following standard practice in covering a major election, and we are pleased that the court recognized the great public interest in Governor Romney’s testimony. If it became possible to obtain the transcript without lifting a gag order, we had no reason to object. The gag order is a matter for others to litigate, if they wish to do so.”

At the time of his testimony, Romney was the owner and chief executive of Bain Capital, which invested $850,000 in Staples to help the office supply company open its first store in Brighton in 1986.

In total, Bain Capital invested about $2.5 million in Staples and reaped a $13 million profit when the company went public in 1989. Romney also sat on the Staples board of directors, where he was “probably the most valuable member,” Stemberg told the Globe in a 1994 interview.

At Stemberg’s request, Romney testified in 1991 about what the value of Staples shares had been in early 1988, when Stemberg and Sullivan Stemberg reached a separation agreement.

Romney described Staples as dysfunctional at the time — a place with “surly” employees and slow checkout times. His testimony portrays the early days of Staples as rocky, riddled with operational problems and contentious board fights that left Romney angst-filled and pessimistic about the company’s prospects.

Bain Capital had bought into Staples at 80 cents per share in January 1986. When Staples sought prices of $2.10 and $2.90 per share on second and third rounds of investment, Bain Capital hesitated before making smaller investments. Staples was growing too slowly, and Stemberg was on thin ice with investors, Romney said.

“We were obviously proved wrong, ultimately, but the price we thought was high at that stage, given the company’s performance,” Romney testified.

Romney explained that he had been asked by Stemberg in 1990, at the beginning of the lawsuit, to retroactively appraise Staples shares at the time of Stemberg’s separation from his wife.

As a reference point, Romney said, he used the $2.90 price on preferred shares Staples had sold to investors in December 1987, the most recent sales period.

The shares awarded to Sullivan Stemberg were worth less than $2.90, Romney argued, because they carried fewer benefits. For example, Romney said, owners of the shares purchased in December 1987 would have received more money than a buyer of Sullivan Stemberg’s shares if Staples failed and its assets were liquidated.

Such protection is valuable to investors, Romney said. He put the fair market value of Sullivan Stemberg’s shares at about $1.75 apiece. In getting $2.25 and $2.48 per share in sales, Sullivan Stemberg had done well, Romney testified.

Beth Healy of the Globe staff contributed to this article. Callum Borchers can be reached at callum.borchers@globe.com. Follow him on Twitter @callumborchers.

Correction: Because of a reporting error, an earlier version of this story should have stated that the value of the Staples stock received by Maureen Sullivan Stemberg in the couple’s 1988 divorce was less than one-third the value of the stock after its initial public offering in 1989, not one-tenth its value. Mitt Romney’s testimony did not make clear that a count of Sullivan Stemberg’s shares reflected her holdings prior to a three-for-one reverse stock split that took place as the company went public.

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