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The end of an era: Brokaw officially dissolves

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By Shereen Siewert

VILLAGE OF MAINE — The village of Maine officially absorbed the village of Brokaw this week, forever changing the landscape of Wausau’s neighbors to the north. The change, years in the making, was made official on Monday.

Brokaw has been struggling to cope with more than $3 million in debt since the village’s central business, a paper mill, closed its doors in 2012. The closure, which eliminated 450 hourly and salaried jobs, left Brokaw essentially bankrupt, and was the first domino to fall in a chain of events that included legal action from Wausau and a bipartisan bill named for the village that aims to prevent similar issues at other U.S. businesses.

The road to closure

The seeds for Brokaw’s demise were planted in 2011, when Starboard Value, the New York hedge fund led by Jeff Smith, took a stake in shares of Wausau Paper, the Mosinee-based company that owned a slew of mills, including the one in Brokaw.

The Brokaw mill was known for making rainbow 8-by-11-inch sheets of paper that could be purchased at office supply stores like Staples and OfficeMax. Starboard said that business was in decline and dragging down the rest of Wausau Paper, which made everything from toilet paper to paper towels.

By December of that year, Wausau’s board of directors approved a plan to permanently close the Brokaw mill.

Those who defend the hedge funds say it was management at Wausau Paper, and not the investors, who were responsible for closing the mill. The same story had been happening all over during that time period as the American paper industry began facing greater competition from China and a more-environmentally-conscious consumer that was turning more frequently to computers and printing out fewer documents on paper.

Wausau Paper already had shut down a sulfite pulp mill in Brokaw in 2005, and two years later, closed its Groveton, New Hampshire mill, followed by the closure of one in Appleton. Then in 2009, the company shut down operations in Livermore Falls, Maine. In all, about 550 jobs were lost as a result of those four closures.

In Brokaw, the trouble began when Smith, in a public letter, criticized what he called the “dismal performance” of the company’s paper business, the focus of the Brokaw mill, urging that Wausau get out of that product line. He also criticized Wausau Paper CEO Hank Newell’s plan to invest $220 million to modernize a Kentucky plant that produced tissues, toilet paper, and towels.

Smith’s criticism drew headlines across Wisconsin. “Wausau Paper shareholder concerned over lagging paper business,” said the headline in The Wausau Daily Herald on Sept. 11, 2011.

No one disputes that there were concerns about the future of the Brokaw mill, given the shift in market trends. But in multiple media reports, Newell said he believed the mill had years of useful life.

After Starboard’s criticism, a potential buyer lowered its offer to an unacceptable price, and then a major customer of the mill went elsewhere. Smith, however, would later blame the problems on management failures by Newell and others.

Either way, the mill was no longer sustainable. Word began to leak that the Brokaw mill would close, a prophecy that proved to be true.

Wausau fights incorporation

In December 2015, Maine residents voted to incorporate to village status, a move that paved the way for a new boundary agreement to help Brokaw resolve its financial crisis.

After Maine began the process of absorbing Brokaw, Wausau spent nearly two years and more than $196,000 fighting the plan on two legal fronts. First, in February 2016, Wausau filed a lawsuit that accused Maine of violating open meetings laws when planning to incorporate. The lawsuit was filed in part to allow a handful of property owners to annex their land to Wausau after the vote was final.

In a separate lawsuit against the Department of Administration, Wausau also challenged the collective boundary agreement. Wausau Mayor Rob Mielke in December 2017 announced the city’s legal battle with Maine had come to an end.

Wausau initially took legal action because officials believed the actions of Maine and the boundary agreement at issue would have profoundly negative economic consequences. City officials also said the landowners who petitioned Wausau for annexation did so because they cannot develop their lands to their highest and best use without Wausau services.

Wausau and the annexing landowners were also concerned that no urban services exist or are practically possible to support economic development activity in the area.

But Maine has made significant strides in securing state and federal financial aid, some of which will help Maine make improvements to Brokaw’s water system. In mid-2017, the U.S. Department of Agriculture awarded Maine $4 million in grants and loans, and the 2017-2019 state budget includes a provision that provides Maine $583,000 annually for five years through the expenditure restraint program.

A bipartisan proposal

The Brokaw Act, sponsored by Democratic Senators Tammy Baldwin (WI) and Jeff Merkley (OR) along with Republican Sen. David Perdue of Georgia, would significantly restrict the ability of hedge fund activists to take minority stakes in companies and force them to make major changes. The legislation is named for Brokaw because it is inspired by the collapse of the village, which Baldwin says happened only after a “wolf pack of hedge funds” seized control of Wausau Papers.

The proposed legislation aims to rewrite the rules of the U.S. economy by increasing transparency and strengthening oversight of activist hedge funds that are abusing weak securities laws to gain large stakes in public companies, according to Baldwin.

The bill was introduced in August 2017. But despite bipartisan support and the backing of a group of prominent businesses and leaders including Home Depot, experts say the bill has little chance of becoming law anytime soon

Not everyone agrees on who is to blame for the demise of the mill. Alon Bray, a Duke University researcher, wrote in a 2016 paper that hedge fund activists played “essentially no role” in the closure of the Brokaw mill.

“To the contrary, the paper company’s incumbent management closed the mill — just the latest in a series of management’s mill closures — amid an industry-wide decline that made the mill uneconomic to keep open,” Bray wrote.

And Starboard did not have control of the company, let alone even a board seat at the time of the Brokaw mill’s closure, gaining board seats long afterward. When the Brokaw decision was made, Starboard did not have a voice in the boardroom — a point made at the time by Wausau Paper. Indeed, the company even said it had been thinking of dumping the paper business before Starboard started buying shares.

Still, Baldwin, along with many former employees at the mill, believe the Brokaw story would have ended much differently had Starboard never taken a stake in Wausau Paper.

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