Dollar General Corporation Shareholder Litigation

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In a case arising from a leveraged buyout of Dollar General by Kohlberg Kravis Roberts & Co. (KKR) in March 2007, the shareholders of Dollar General sued KKR, Dollar General, and its board of directors, alleging that KKR engaged in a fraudulent process and that the board breached its fiduciary responsibilities and accepted an unfair price for Dollar General.

In a case arising from a leveraged buyout of Dollar General by Kohlberg Kravis Roberts & Co. (KKR) in March 2007, the shareholders of Dollar General sued KKR, Dollar General, and its board of directors, alleging that KKR engaged in a fraudulent process and that the board breached its fiduciary responsibilities and accepted an unfair price for Dollar General.

Professor Gompers addressed the favorable credit conditions in late 2006 and early 2007 and opined that the timing of the acquisition was fortunate for Dollar General’s shareholders.

Defense counsel retained Cornerstone Research, Professor Paul Gompers of the Harvard Business School, and a finance expert. The finance expert and Cornerstone Research evaluated whether the price KKR paid to acquire Dollar General was fair. The analysis examined premiums paid in comparable private equity transactions; KKR’s offer relative to Dollar General’s value had the company remained independent and implemented strategic initiatives; market reaction to KKR’s offer and the expectation of alternative bids; the absence of alternative bids; and empirical evidence regarding the effect of deal protection terms on bids and competitions. The expert concluded that KKR did not follow a fraudulent process and that the price paid was fair. He also responded to the plaintiff’s expert, who, through independent valuation, opined that the price KKR paid was less than the value of the company.

Working with Cornerstone Research, Professor Gompers addressed the favorable credit conditions in late 2006 and early 2007 that allowed for KKR to increase its debt leverage and pay a higher price for Dollar General than it otherwise would have been able to pay, and opined that the timing of the acquisition was fortunate for Dollar General’s shareholders.

The case settled.

Case Expert

Paul A. Gompers

Eugene Holman Professor of Business Administration,
Harvard Business School,
Harvard University;
Senior Advisor, Cornerstone Research