NEW YORK — With Warren Buffett and Berkshire Hathaway on one side and creditors on the other, the battle for Burlington is heating up.
This story first appeared in the February 25, 2003 issue of WWD. Subscribe Today.
According to court records, attorneys for a creditor group led by bankruptcy baron Wilbur Ross are set to question Burlington Industries’ chairman and chief executive officer George Henderson today. The unsecured creditors’ committee also filed paperwork with the court alleging that the acquisition proposal by Warren Buffett’s Berkshire Hathaway doesn’t stand a chance of passing muster. Holders of more than 51 percent of the unsecured claims in the Burlington bankruptcy oppose the proposed sale, court documents said.
As reported, Burlington announced on Feb. 11 that it had signed an agreement to be acquired by Berkshire, and that the purchase would constitute the basis of its plan of reorganization and exit from bankruptcy proceedings.
The creditors’ committee wants to ask Henderson questions about negotiations between Berkshire and Burlington; establishment of bidding procedures; the mill’s financial projections. Also on the schedule for a question-and-answer session is Douglas C. Werking of Jay Alix & Associates in his capacity as financial adviser to the firm, according to court papers.
The bidding procedures under consideration before a Delaware bankruptcy court include the payment of a $14 million termination fee to Berkshire should Burlington elect a different suitor. In addition, any purchaser that wishes to enter the fray must make an initial bid that is $19 million higher than Berkshire’s $579 million offer, the papers indicated.
Burlington told the court that Berkshire reserved the right to terminate its offer within three business days beginning Thursday in the event that the bankruptcy court fails to approve the proposed bidding procedures. In addition, either Berkshire or Burlington can end the purchase agreement if the closing fails to occur by July 30, 2003.
The unsecured creditors’ committee specified that the bidding procedures for the court-sponsored auction prohibited “multiple sales of different divisions, stand-alone restructurings, or any [other] combination.”
As reported, Ross has charged that Burlington has failed to pursue a “systematic” shopping process. He told WWD, “There has been no shopping of the company, which indicates to me a very Draconian set of bidding rules that were followed. They made it impossible for a third party to bid for the firm. We think that this is wrong.”
Financial sources in the Burlington case told WWD that many creditors believe the company’s parts would be worth more than its whole.
Court records indicate that Berkshire’s first expression of interest in buying Burlington occurred on Dec. 9, with negotiations continuing through late January. In choosing Berkshire, Burlington rejected a competing bid from Ross, although the Berkshire proposal allows the textiles firm to continue negotiations with him.
The committee also filed legal papers opposing Burlington’s request for an extension of exclusivity. Burlington is seeking the exclusive right to file a plan of reorganization through May 31, which would be its third extension. The current exclusivity period ends on March 31.
According to court documents, the committee said that the “price at which [Burlington has] decided to allow themselves to be sold is unanimously opposed by the members of the committee.”
The committee also said in its opposition papers that courts have refused to extend exclusivity where the “debtor is using [it] to hold creditors hostage to [the firm’s] approach to the reorganization.” In the Burlington bankruptcy, the committee said it has “not been allowed to participate in the negotiation process with [Berkshire], nor has it had the ability to meaningfully assist the debtor in finding alternative sources of funding”