BROKAW, Wis. — One of Wisconsin’s U.S. Senators is proposing legislation to prevent investment groups from taking over companies so they can liquidate the assets for short term profit. Democrat Tammy Baldwin has authored The Brokaw Act, named for the community of Brokaw, Wisconsin, where the major employer for a century was shut down.
A hedge fund company called Starboard Value LP has a history of investing in a company’s stocks, and with as little as five percent ownership, leveraging control of companies by taking over the administration and boards of directors. Starboard Value has successfully taken over operations or majority control at Olive Garden parent company Darden Restaurants, MedAssets, and the former Wausau Paper. Now, they’re moving for control of Yahoo! Starboard Value has publicly stated they wish to replace the board and current CEO Marissa Mayer.
Baldwin says her legislation would prevent one or more activist hedge funds from plotting to destroy a company for profit, which she says is what happened as Wausau Paper closed mills including Brokaw, and sold other mills including Mosinee, before being acquired by Swedish paper maker Svenska Cellulosa, or SCA. “In a couple of short months, we had activist hedge funds who basically plotted for it’s demise, and that’s outrageous.”
Baldwin says the hedge fund investors will alone, or with other investors, cash out and run while destroying jobs and entire communities. “We are seeing lone wolf activist hedge funds, as well as what we call wolf packs… groups of activist hedge funds, working in concert, again with only a short-term profit motivation rather than investing in the long-term of major industries in communities, and again, the industries that are the backbone of the community.”
In Brokaw, over 90% of the village’s tax base came from the paper mill, which opened in 1899 and shut down in 2012. The mill was the largest user of the water and sewer utilities, which the village had invested millions into. When the mill closed, Brokaw quickly became insolvent. They are now part of a complex effort to become part of the newly-incorporated Village of Maine, with special border agreements with the Town of Texas.
Senator Baldwin says her Brokaw Act legislation would force more disclosure along with limiting certain actions. “It is vital that we get transparency on these activist hedge funds, understand what they’re doing, when they’re doing it, so that we can reign them in, because we can’t afford in the United States to have another instance to have another instance like what happened when Wausau Papers mill in Brokaw closed.”
Under existing law, governmental bodies like cities and villages cannot declare bankruptcy.
Many of the 450 former Wausau Paper workers live in the village of Brokaw. A large number of them remain unemployed or underemployed, making it difficult for them to pay the new higher taxes that Brokaw was forced to levy after the mill closed.
Baldwin says we need to make sure this doesn’t happen to another American community.
The Senator admits she has an uphill battle with The Brokaw Act, since many of her colleagues on both sides of the political isle are supported by large, Wall Street investors including hedge fund operators.
by Larry Lee, WSAU
