[Congressional Record Volume 142, Number 67 (Tuesday, May 14, 1996)]
[House]
[Pages H4903-H4904]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      LEGISLATION NEEDED TO COMBAT UNSCRUPULOUS BUSINESS PRACTICE

  Mr. FRANK of Massachusetts. It is a pleasure to again be able to 
address Speaker Foley.
  Mr. Speaker, I want to talk about a subject in which I plan soon to 
introduce legislation. It has to do with the practice of large, wealthy 
entities using a combination of their wealth but also the laws of this 
country, the securities laws, the tax laws, accounting principles to 
acquire companies when their intention in acquiring the companies is to 
shut them down.
  In particular, I am addressing the situation in New Bedford, MA, 
where, to my great dismay, the firm of Kohlberg, Jerome Kohlberg and 
James Kohlberg, bought a company which had a plant in New Bedford, MA, 
a plant that has been in existence for over 100 years, that is 
profitable today as it was profitable when they bought it, making 
various forms of fasteners, shoe eyelets, and they bought it apparently 
to close it down. They bought it because given the tax advantages that 
were available to them when they borrowed money for the purchase, given 
other kinds of accounting questions as to what things are valued at, it 
enriches them more, because they are very wealthy people--we are not 
talking about anyone fighting for survival--it enriches them more to 
close it down.
  I want to make a distinction because I have had people say to me, 
``Well, don't the owners of private property have a right to do things? 
In some cases closing down a plant that's faltering is the only thing 
to do.''
  Yes; sadly that is the case. But I want to make this important 
distinction. I am not, in the legislation I will be preparing, seeking 
to restrict someone who is in business, who has owned a business, who 
is trying to make a product, who decides that he or she can no longer 
profitably do that, that his or her capital would produce a better 
return elsewhere. I am not talking about disturbing the business 
decisions of long-term owners. That is a different issue. I will 
address that in another context. I am talking here about the case of 
Jerome Kohlberg and James Kohlberg acquiring this business for the 
purpose of shutting it down.
  If it were a business that was dying because of a lack of 
profitability, the question would be a different one. If it were a 
business that were losing its suppliers, that was being even 
outcompeted by others, the case would be a different one. What I want 
to do is to examine the tax laws, the corporate laws, the accounting 
practices in this country that make it profitable for people to buy a 
company and shut it down.

  The Kohlbergs, having paid, they tell us, $16 million for this 
company as they account for it, and I am skeptical of how exactly they 
got to that number, will not accept bona fide offers that were made for 
the company. I want to stress that again. We are not talking about 
forcing someone to keep open an unprofitable enterprise. There are 
responsible businesspeople in the city of New Bedford. They have worked 
with the United Electrical Workers Union, which has been very 
statesmanlike in this regard; they have worked with the mayor of New 
Bedford and her Economic Development Commission. And people who know 
the business, people who have made manufacturing work in New Bedford, 
have come in and said, ``Please sell us this at a reasonable price,'' 
and they have been refused. Indeed, the Kohlbergs did not want to even 
entertain offers of a sale. We pressured them so they said they would 
entertain offers but they did it in so unrealistic a fashion that we 
had no chance to succeed.
  What happens? What happens is they use various laws so they can buy 
up a company just to shut it down. More than 100 people are thrown out 
of work. Their families will be in distress. Costs will be imposed on 
the city of New Bedford, on the State of Massachusetts, on banks, on 
schools, on auto dealers. These are hardworking Americans who suddenly 
find themselves bereft of an income at a time and a place where it is 
not going to be easy for them to replace it, so that Jerome Kohlberg 
and James Kohlberg, who are already quite wealthy, can get wealthier.
  Again, I want to stress, this is a case where they bought this place 
to shut it down. People have said, ``Do you want to interfere with 
private property?''

[[Page H4904]]

  Well, yes; I do want to reduce the incentive people have to buy a 
going concern that was in no danger, that we know of, of shutting down 
just so they can shut it down and get richer. We had in this case 
people ready to step forward. If the owner wanted to sell, a fair price 
would have been offered. There were people ready to say, ``Here's your 
money and we will take over and we will keep this place running.''
  We are not talking about confiscating private property. We are not 
talking about interfering with a legitimate business decision that 
says, ``This is no longer a profitable enterprise. I'm taking my 
capital elsewhere.'' We are talking about a set of laws in this country 
and regulations and accounting practices, and these need to be looked 
at further, that incentivize someone buying a plant solely for shutting 
it down. That is something that must be changed.

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