Unsealed court documents complicate story of Georgia gubernatorial candidate’s business acumen

Perdue, the statement said, “fast-tracked change and led a turnaround” that helped the company accomplish “its mission of helping families get from payday to payday. … These false attacks have failed before, and they will fail again now.”

At the beginning of 2006, Perdue was heading a company whose business focused on providing low-cost items, primarily to rural communities. Dennis Bottorff, Dollar General board member, said in his deposition that, over the last few years, Dollar General had pinned its growth on opening stores — launching about 800 a year. But in 2006, the company “didn’t have the foundation to really continue that growth,” Bottorff said. To lay a new foundation, it deployed Project Alpha, a bid that included the closure of hundreds of low-performing stores.

Perdue said in his deposition that he approached private equity on his own to get a sense of what people thought of Dollar General’s position in the market, to gather information.

“In retrospect, we might have been a little naïve in going into the market,” Perdue said.

But according to the shareholders, Perdue had told the managing director of an executive recruiting firm in April 2006 he was interested in seeing the company go private. The director allegedly pointed Perdue towards KKR.

Following a second meeting in August, KKR executive Calbert emailed Perdue saying he would be sending over a confidentiality agreement and he thought that going private would push forward Perdue’s work with the company.

As quoted in the shareholders' brief, another email from Calbert a couple days later to a person inside KKR reported that Perdue wanted to “pursue a transaction exclusively with us” but he didn’t want to delve too much into the process, else he would need to inform the board of Dollar General.

Meanwhile, Dollar General’s board met at the end of August 2006, where Perdue mentioned he was speaking with private equity firms. The shareholder’s brief said three board members said in their depositions that Perdue did not mention an August meeting with KKR.

Board member Richard Thornburgh, a newcomer to the board at the time, said in his deposition he was surprised when Perdue said he was meeting with two or three private equity firms without first running it past the board. His impression around that time was “that the guy needed to get reined in.”

Weeks later, KKR executives flew in to meet with Perdue and Cal Turner Jr., Dollar General’s former CEO, at a bank office in Nashville. Turner's family still owned a significant portion of the company’s stock, and he wanted to know what was possibly happening with his family’s investment, according to Turner's deposition. Sitting in on the meeting was David Wilds, an adviser to Turner who gave advice on investments and who was also on the board of Dollar General.

Following the meeting, Perdue and Wilds spoke with Bottorff and asked for his thoughts. Perdue testified that, at the meeting with Turner, KKR’s communications “rose to a new level” when its executives mentioned a valuation.

“I said immediately, you ought to talk to the board, the board needs to be informed of this, and then we need to talk about what our next steps are,” Bottorff told attorneys.

Meanwhile, the shareholders’ brief says Perdue was speaking with Calbert who was, according to an email Calbert wrote, helping Perdue review “his ‘pitch’ to the board” and talking about where individual board members appeared to stand regarding a deal. This information, the shareholders said, was confidential.

Perdue testified he did not tell the board anything Calbert told him to say and around this time he felt things were “moving too fast.”

On Sunday, Oct. 8, 2006, Dollar General’s board met to deliberate what it should do with KKR’s offer to buy the company in a telephone call.

David Bere participated from inside an airport. Thornburgh took the evening call at the Hotel Bel Air, where he was staying as he was visiting schools with his child.

While the accounts recounted in the depositions vary, the meeting allegedly was a contentious one.

Perdue said in his second deposition that he told the board at this meeting he had not made a deal with KKR, nor talked with the firm about his compensation.

“I emphatically said that I was on the board’s side of evaluating any strategic opportunities, because I recognize the potential conflict of interest. I was committed to the turnaround, and I was committed to Dollar General,” Perdue said.

Dollar General board policy stated that a full board would consider any offers to buy the company if an interested buyer stepped forward and the CEO would serve as spokesperson, Bottorff testified. But with Perdue’s involvement in the process so far, that arrangement could not work.

Given that Perdue had helped facilitate the conversation with KKR, the board needed to exclude Perdue from the process so it set up a strategic planning committee.

The next day, Perdue called KKR “to once again leak information about the board’s deliberations,” the shareholders would later tell the court. Calbert’s emails said two directors were resisting the proposal; two were for.

The shareholders said Perdue communicated with Calbert a handful of times about how the board was deliberating — communications memorialized in emails Calbert sent to other members of KKR.

Perdue later learned that KKR might face competition in the sale, according to the shareholders. To discourage other bidders and make KKR’s bid an exclusive one, Perdue allegedly said he would call the bankers he had hired to put an end to such talks.

When asked about the emails in his second deposition, Perdue said the information they contained were “inconsistent with my demeanor” and he did not remember specific board members’ opinions, let alone telling Calbert about it.

“I think this is an aggressive guy reporting to his boss,” Perdue said.

John Coffee Jr., professor at Columbia Law School who served as Dollar General’s expert witness in the case, said in an affidavit filed in the case that the alleged actions by Perdue were “inappropriate.”

“Unquestionably, Perdue’s alleged behavior in sharing confidential information about the attitudes of individual board members was ill-advised and potentially destructive of good working relationships within any board,” Coffee swore.

Ultimately, Coffee said Perdue’s actions did not affect the sale. When the company entered into a sale agreement with KKR in March 2007, the $22 a share that KKR paid was a good deal for the shareholders, Coffee said.

In its bid for summary judgment, Dollar General called the allegations a “red herring” because Perdue’s actions were rendered moot after the board decided to create a committee to study the process.

“Absent evidence that Perdue dominated the Board or otherwise influence the process, his early contacts with KKR are legally irrelevant,” attorneys at the Nashville firm Riley, Warnock & Jacobson wrote for Dollar General in another brief.

Professor Arthur Laby, an expert in securities law at Rutgers University, wrote in an email that the deliberations made by a company’s board of directors are typically nonpublic. The allegations the shareholders leveled against Perdue “are very serious” if true.

“Generally, a CEO must evaluate whether a transaction is in the best interest of the company and its shareholders and achieves the best value reasonably available to the shareholders,” Laby wrote.

And what did Perdue get out of this? The shareholders said all throughout the transition, Perdue acted like he would be CEO of the newly private company.

In his second deposition, Perdue said he had hoped to remain on as CEO, although he had not specifically brought it up during conversations with KKR.

But there was rising dissatisfaction with Perdue’s performance.

Thornburgh said in his deposition Perdue had asked for a raise of $100,000 from his $1 million salary even though the company’s stock prices had essentially remained flat.

“I think his behavior the previous four or five months suggested that Mr. Perdue was looking to line his pockets with money as opposed to maybe doing the right thing for the company,” Thornburgh said.

Furthermore, Thornburgh said he thought Perdue was unprepared and unfamiliar with the operations of the company.

“I was concerned that David was not a hands-on-enough manager for the challenges facing the company and was somewhat concerned that he was someone who was quite interested in the trappings of being a CEO, but didn’t want to take the responsibility of being a CEO,” Thornburgh said.

David Bere, a director who was tapped around this time to be the company’s chief operating officer, would later tell attorneys that the board was starting to see “a few red flags” with Perdue’s performance. He was losing credibility with the board of directors, Bere said in his deposition, and “the management team was losing faith in David.”

Calbert testified that KKR was strongly contemplating not keeping Perdue on during the transition in February 2007. Despite that, Perdue helped give a presentation in New York to potential equity investors in April.

The shareholders wrote that KKR told Perdue it planned to terminate him “once Perdue was no longer useful.” Purdue “clearly has a ‘self-awareness’ issue," Calbert wrote in an email quoted by the shareholders, referring to Perdue's alleged ignorance of his looming termination.

It was Calbert who broke the news shortly thereafter at Perdue’s office in Nashville.

“I think there was some element of surprise, but mostly disappointment. … These conversations are always awkward. And you know, he made some reference, almost kind of a defensive comment that said well, you know, I kind of been thinking about doing other things anyway, almost to blunt the fact that we had decided not to go forward with him,” Calbert testified.

At his second deposition in August 2008, Perdue said he no longer held stock in Dollar General. Though he sat on a few boards, Perdue said he was retired.

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