Owners turn over Wisconsin firm over to surprised employees

Original Story: KnoxNews.com

A family with some of Milwaukee's deepest manufacturing roots has decided to turn its company over to the people it credits most for its success.

The families of Donald Baumgartner and his son, John, owners of Paper Machinery Corp., handed the 65-year-old Milwaukee company over to stunned employees Monday through an employee stock ownership plan, a change that over time could put hundreds of thousands of dollars into the retirement accounts of some longtime workers.

Paper Machinery says it's the world's leading manufacturer of machines used to produce paperboard cups and containers for brands like McDonald's, Starbucks, KFC and Tim Hortons.

The announcement of the change was made at an employee meeting in a big party tent in front of the company headquarters, with plenty of beer, food and a jazz band.

Not knowing what to expect, some workers were worried that Paper Machinery was being sold to another company.

"I would have to say there was a lot of anxiety. But I would be willing to bet now that everybody's elated," said Greg Winn from Menomonee Falls, a tooling designer who has worked at the company for 36 years. "We were really floored and pleasantly surprised."

Located at 8900 W. Bradley Road, Paper Machinery employs 250 people and posts more than $100 million in annual revenue. The company is now 100% employee owned.

"This is great news for our employees and great news for Milwaukee. The transition to employee ownership will ensure that Paper Machinery Corporation's legacy will continue right here in Milwaukee for generations to come," said Donald Baumgartner, who founded the company in 1951, and whose family has been manufacturing machinery in Milwaukee since the 1930s.

Under the new employee stock ownership plan (ESOP), eligible employees will earn shares of Paper Machinery Corp. stock over time. An ESOP is a federally regulated retirement plan that invests in the stock of an employer on behalf of its employees.

The plan is in addition to the employees' existing retirement benefits.

The company would have to remain profitable and meet its goals in order for the employee owners to realize the maximum benefits.

Some production employees could retire with more than a million dollars, said Steve Barth, an attorney with the Milwaukee law firm Foley & Lardner, legal counsel to the company in the transaction.

The Baumgartner family has been engrained in Milwaukee's manufacturing history for decades, from building machinery in the family garage to launching Milwaukee companies including Reliable Tool and Mercury Engineering, as well as Paper Machinery.

Donald Baumgartner got his start working for his father, John Robert Baumgartner. He went on to follow in his father's footsteps, founding Paper Machinery in 1951.

Every facet of the company's engineering, manufacturing and service takes place at the company's Milwaukee headquarters.

"We are deeply committed to Milwaukee and to our employees," Donald Baumgartner said. "When the time came to transition ownership, the choice was clear. Who better to carry on our legacy and tradition than the people who made the business successful in the first place — our managers and employees."


Over the years, Baumgartner said, he saw too many companies where employees lost their jobs after the business they worked for was sold.

"I watched my father build and sell three companies in Milwaukee, all three of which were moved out of state. I didn't want that to happen again," he said.

From those experiences, Donald Baumgartner and his son John decided that an ESOP was the best succession plan for Paper Machinery.

"This is a family business. Our employees are our family, making a transition to an employee-owned company a natural fit," said John Baumgartner, former president of Paper Machinery and now a member of the board of directors.

The business has grown rapidly in recent years, adding 50 jobs since 2014.

The Baumgartners will benefit from the sale of the shares to the ESOP, but not nearly as much as they would have from selling the company to another buyer.

"Despite my many strong recommendations that they market Paper Machinery Corp. to a third-party buyer, at a likely much-higher, cash-upfront purchase price, they instead insisted on pursuing an ESOP sale to ensure that their employees would be rewarded for helping them build PMC into the great company that it is today," Barth said.

"The Baumgartners put their employees, customers and community above their own personal interests in pursuing this transaction. Really quite remarkable, and very inspirational both professionally and personally," Barth added.

Operational control of the company is being transitioned to longtime managers Luca Dellomodarme, Scott Koehler and Michael Kazmierski.

"The success or the failure of the company is in the hands of the people who work here every day. We will be doing what we have always been doing, maybe with a little more responsibility," said Koehler, Paper Machinery's chief financial officer and treasurer.

Donald Baumgartner will continue to serve as chairman of the board of directors, with John Baumgartner remaining on the board.

"I am 85 years old, and I have been at this for over 60 years. The company is in incredibly good shape at the moment, so the timing could hardly be better," Donald Baumgartner said.

The Baumgartners say they will remain in Milwaukee, where they are active in the arts, theater and charities.

"I have strong roots here in Milwaukee. ... I care a lot about this community," said Donald Baumgartner, who is a past president of the Milwaukee Art Museum's board of trustees and served as chairman of the museum's building committee during construction of the Calatrava addition.

Originally, Paper Machinery was named Milwaukee Shipbuilding Corp. because the Baumgartner family initially thought about building a business refurbishing surplus military ships. The company, however, never touched a ship, instead turning its attention to building machines that make paper cups.

Now, with employees at the helm, "The ship is on course, the weather is fair, and the fuel tanks are full," Donald Baumgartner said. An ESOP Lawyer assisted in the transaction.

MENTAL COMPETENCE SUIT AGAINST REDSTONE RAISES QUESTIONS OVER FUTURE OF VIACOM AND CBS

Original Story: latimes.com

The lawsuit filed this week challenging the mental competence of media mogul Sumner Redstone has raised questions among legal and business experts over the future of the 92-year-old billionaire's empire and how his companies should respond. An Iowa probate lawyer is following this story closely.

Redstone controls CBS Corp. and Viacom Inc., which owns Paramount Pictures, MTV and other media properties. The companies have a combined market value of about $45 billion, but neither has publicly discussed details of Redstone's deteriorating health.

The suit filed in Los Angeles County Superior Court by Manuela Herzer claims Redstone was not mentally competent when he removed her from oversight of his healthcare last month.

Redstone's lawyers have called the legal action by Redstone's ex-girlfriend "preposterous," "meritless" and "riddled with lies" — but it could nonetheless force CBS and Viacom to address the issue of Redstone's competence, some legal experts say.

Companies are not required to disclose medical details about their executives, according to analysts. But they do have to divulge "material" information — in other words, anything that reasonable investors would need to make informed decisions when buying and selling stocks. An ESOP lawyer represents clients in business exit planning and employee stock ownership programs.

If the court finds that Redstone is in fact incapable of making decisions, that could open up the companies to potential lawsuits from shareholders claiming that key information was kept from them, lawyers said.

"It raises the question of who knew what when, and what should've been disclosed to shareholders at what point in time," said Los Angeles attorney Bryan Sullivan, a partner at Early Sullivan Wright Gizer & McRae who has handled fiduciary duty matters. "If one person in the power structure knew he was incompetent, then there is potential liability under SEC regulations for failure to disclose material facts."

A representative for Viacom did not respond to a request for comment, and CBS declined to comment.

The issue of executive health came to the forefront in 2009 when Apple Inc. co-founder Steve Jobs took a medical leave and disclosed a hormone imbalance. Jobs, who had undergone surgery in 2004 to remove a cancerous tumor in his pancreas, did not say whether his cancer had returned at the time but said that the issue was "more complex" and required a six-month leave.

In April 2009, Jobs underwent a liver transplant. That procedure triggered a discussion of whether Apple, long known for its secretive corporate culture, had run afoul of federal securities rules by not disclosing the severity of the executive's condition. Jobs returned to work at Apple in June 2009.

He took another leave from Apple in 2011 — citing health issues — and resigned from his post before he died that October from complications of pancreatic cancer. A Des Moines probate attorney is reviewing the details of this story.

Another recent high-profile case of an executive's declining health taking center stage was former Los Angeles Clippers owner Donald Sterling, who lost control of his enterprise after being declared mentally incapacitated.

In the aftermath of the release of an audio recording of Sterling disparaging blacks in April 2014, the 81-year-old executive's wife sought control of the National Basketball Assn. team.

In May 2014, two doctors found Sterling, who by then was banned for life from the NBA, mentally incapable of continuing on as a member of the family trust that owned the basketball franchise. Shelly Sterling then reached a deal to sell the Clippers to former Microsoft Corp. Chief Executive Steve Ballmer for $2 billion.

Donald Sterling has unsuccessfully fought the sale of the team in court.

Some corporate governance experts say companies have been more forthright about their executives' health problems since the Jobs ordeal. Still, it often makes more sense for companies to stay muted, said law professor Allan Horwich, who practices at the Chicago firm Schiff Hardin. Firms can expose themselves to greater risk if they make affirmative public statements about an executive's health.

"This issue becomes much more difficult for the company when they do say something and they leave out information about the health of an executive who might not be able to serve," said Horwich, who focuses on securities litigation and fiduciary duty matters. He also teaches at Northwestern University's Pritzker School of Law.

Steven Davidoff Solomon, a law professor at UC Berkeley, also said it's unclear what the companies would need to divulge to shareholders and when.

"Given the control he has over the company, one would like to think that the company would think this is material information that should be disclosed," Solomon said. "But it's hard to know how much the company knows and how much it doesn't know and what it's real duties are."

The future of Viacom and CBS has been the subject of much speculation on Wall Street in recent months. Viacom has suffered from falling ratings at its cable networks and a weak film slate from its Paramount Pictures movie studio. Shares of Viacom, which owns MTV, Nickelodeon and Comedy Central, have fallen 32% this year. In contrast, CBS' stock has decreased just 8%.

On Friday, Viacom shares slipped $1.19 to $51.16, while CBS fell 23 cents to $50.75. A Los Angeles finance lawyer is knowledgeable in asset sales, debt and equity finance claims, and financial restructuring matters.

Herzer's suit demands that Redstone receive a mental examination, including a brain scan, and submit to a videotaped deposition. If her suit succeeds, Herzer could return to prominence in Redstone's affairs. Her suit asked the court to determine that her authority as the healthcare agent be reinstated.

Herzer was the agent of Redstone's advance healthcare directive and says she made decisions about his medical care until she was expelled from Redstone's home last month. Viacom Chief Executive Philippe Dauman then took over as the agent of Redstone's healthcare directive. If a doctor determines that Redstone has become incapacitated, Dauman would make decisions on Redstone's behalf. Redstone's lawyers say the former girlfriend filed the suit to avoid being cut out of his will.

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For the Record

An earlier version of this article said Manuela Herzer made healthcare decisions on Sumner Redstone's behalf until she was expelled from his home. The article should have said Herzer says she made decisions about Redstone's medical care.

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Redstone and his family control 79% of the voting shares of the two companies. Redstone has not been involved in the day-to-day functions of Viacom or CBS for some time. CBS is run by CEO Leslie Moonves.

When Redstone dies, the Sumner M. Redstone National Amusements Trust will determine what happens to his controlling interest in the companies. The companies each have a two-tier stock structure, with most shareholders owning nonvoting shares.

Still, a fraught and protracted legal battle could harm the Redstone empire even if the court finds the allegations to be meritless, said David Becher, a professor of finance at Drexel University.

"Even if it is a frivolous suit and there's nothing going on, I think the distractibility is going to hurt the company," Becher said.