MILAN -- Plaid Clothing Group has edged out Mexican magnate Fabio Covarrubias in the quest for GFT, the giant Italian apparel manufacturer.

Plaid Clothing, a private U.S. men's wear manufacturer owned by international investors, has an exclusive agreement to acquire total control of the troubled, but slowly improving GFT, currently in the hands of the banks.

The deal is expected to be made final within the next few days, possibly as early as today, according to a source at Plaid Clothing.

Covarrubias, who had expected to sign a preliminary deal this week, has withdrawn his offer.

"The terms of both offers are similar, with the exception that the Mexican proposal requires a two-step closing," said a source close to the GFT negotiations.

The price offered by Covarrubias was $240 million (400 billion lire) in two bond payments, or about 60 percent of GFT's total debt load, plus bank interest for the first few months of 1994.

Plaid's offer was cash, the source confirmed, originally $230 million (388 billion lire), or 65 percent of GFT's total debt. Plaid, however, reportedly sweetened its bid by offering to pay an additional 5 percent of GFT's total debt. GFT's debt amounts to $354 million (600 billion lire), plus about $59 million (100 billion lire) in debt from its German operations.

The banks have agreed to write off GFT's remaining debt, once a deal is completed.

"Things are very fluid right now," the source added, "and I feel something very substantive will take place in the next 24 hours between GFT and Plaid."

Mediobanca, the Italian merchant bank that has masterminded the GFT rescue plan, presented Plaid Clothing's and Covarrubias's offers to GFT's creditor banks in a meeting Wednesday.

After long deliberation, the creditor banks opted for Plaid Clothing.

"We outlined both offers in a clear and impartial way," said a Mediobanca spokesman. "Plaid's offer was more advantageous economically, while Covarrubias's bid was more secure and the deal could have been closed shortly. We informed Covarrubias of the new contender last Monday, and it was their last chance to counter-offer."Under terms of the agreement, the banks have the option to back out, while Plaid is bound to follow through with its offer.

"After diligence, Plaid cannot withdraw, but can adjust the offer," said Mediobanca's spokesman.

Plaid Clothing is privately owned, with Mideastern and American investors. The company had its corporate roots in The Netherlands, where it formerly operated as Plaid NV. But after acquiring J. Schoeneman in 1991 by bankrolling a management-led buyout from Bidermann Industries, and The Palm Beach Cos. in 1992, the company eventually changed its name to Plaid Clothing Corp. and centralized its efforts in the U.S.

Also in 1992, Plaid acquired the Evan-Picone men's tailored clothing license.

Plaid Clothing's officers are all believed to have equity in the company. Among them are vice chairmen William B. Anneken and Omar Al Askari; James J. Stankovic, president, and Joe Riemer, executive vice president and general counsel. Plaid Clothing is based at 730 Fifth Ave., New York.

It is being represented in Milan by investment bank Euromobilare.

One question that remains is how Plaid Clothing will eventually run GFT once the deal is final. Market observers in the U.S. said Plaid is likely to continue its strategy of allowing its companies to operate autonomously. This has been the case with J. Schoeneman and The Palm Beach Cos., where the management was retained at both firms, following Plaid's acquisition.

Sources close to GFT said managing director Clemente Signoroni and chairman Marco Rivetti seem to be more comfortable with Plaid than Covarrubias, since Plaid's involvement would make it much more likely that the two will retain significant roles in the company.

"On paper, the American group is more of an investor than a manager. They know their metier, and they realize that GFT has to cut down its costs in the U.S., for instance," said one source.

In a hastily called press conference Thursday morning, Fabio Covarrubias explained why he pulled his offer.

"After months of intense negotiations, we thought our offer should have had an exclusive agreement. After having done diligence, the Morgan Grenfell [bank] advised me to either withdraw my offer or lower it, but I wanted to be aggressive in this operation. We couldn't have done more," explained Covarrubias.Dante Razzano, manager of the Morgan Grenfell bank's Milan office, which handles Covarrubias, expressed surprise over Plaid Clothing's offer.

"They made the offer without having done diligence [on GFT]. We'll see if once they've finished [diligence] the offer remains unchanged. For our part, the [deal] is definitely closed," he said.

"This brings a new uncertainty for GFT, since it's been up for sale for the past year," Razzano added.

Late Thursday night, GFT's managing director Signoroni called attention to the company's financial improvements. He confirmed that 1993's operating results were over $17.7 million (30 billion lire), as expected, up from $11 million (18.6 billion lire) in 1992. GFT should also double its operating results against 1993. He added that the company's fall-winter 1995 designer collections were selling well and predicted that 1994 sales would hit about $822 million (1.4 trillion lire).

In the last phase of the race for GFT operation, a third suitor, in addition to Covarrubias and Plaid Clothing, appeared. Sources said the third company was GFT's Piedmontese neighbor, Miroglio, which had pulled out of an agreement to buy GFT last year. Although sources said Miroglio reexamined GFT and was prepared to make a bid, it seems that the manufacturer was rejected by leading GFT designers.

"Neither Armani nor Valentino were comfortable with the idea of Miroglio after the last go-around," said one source.

Of the Plaid Clothing connection, some GFT designers are holding off judgment.

Emanuel Ungaro said, "I can't really say much while the matter isn't settled. I know very little about this group Plaid. I'm not even sure how to pronounce their name. I do think that this business is far from being over. There are still several groups interested. In my view, people are beginning to wake up and realize that GFT is not such a bad company after all."

Jacqueline Montana, Claude's sister, said "This is all news to us. The last thing we read in the newspapers was that the Mexicans were talking with GFT."

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