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NEW YORK — The one-man campaign of Wilbur Ross to restructure the U.S. textile industry took a dramatic turn on Tuesday.
The bankruptcy baron said he had agreed to purchase denim maker Cone Mills Corp., which he would then merge into Burlington Industries, once he closes on his acquisition of that firm.
This story first appeared in the September 17, 2003 issue of WWD. Subscribe Today.
The deal, which follows a similar strategy to the one the financier took in the steel industry, would put together two mills that were once among the nation’s largest. The new entity would be the largest denim producer in North America, sources said.
But Cone first has to file for bankruptcy.
In a statement revealing the deal, Greensboro, N.C.-based Cone said it had missed a $4.1 million interest payment on its bonds that had been due Sept. 15, though the terms of the loan give it a 30-day grace period. The mill said it expects to file a Chapter 11 bankruptcy petition “within the next several days.” If the deal is approved by the bankruptcy court, Cone said it expects to close the sale within three months.
While the company did not disclose the purchase price, it said in the statement, “It is not expected that the proceeds of the proposed transaction will be sufficient to satisfy the company’s secured indebtedness. As a result, there is not expected to be any recovery for the company’s shareholders.”
A source close to the situation said the proposed purchase price was less than $100 million.
According to filings with the Securities and Exchange Commission, on June 29, Cone’s long-term debt came to $99.2 million, with total liabilities amounting to $238 million. The balance sheet showed $327.3 million in assets, making stockholders’ equity $89.3 million.
Cone shares did not change hands in New York Stock Exchange trading Tuesday, remaining at $1.08 for a market capitalization of $28 million.
In a phone interview Tuesday, Ross, who serves as chairman and chief executive officer of New York investment concern W.L. Ross & Co., said he thought Cone would be a good fit with Burlington. As reported, Ross has agreed to pay $614 million to buy Burlington out of bankruptcy, in a deal expected to close next month.
Referring to Burlington, he said, “Its product lines are very complementary to those of the Parras Cone [joint venture] Mexican operation of Cone Mills. We believe that the textile industry is in need of some degree of consultation. It is easier to moderate your production if you have multiple facilities with different cost structures and manufacturing characteristics.
“This is not a Pillowtex, in that there’s no earthly need for Cone to be liquidated,” Ross continued, referring to the defunct home fabrics manufacturer. “Cone is, in my view, a pretty well-run company. There is a problem that they have with their balance sheet.”
In a separate interview, John Bakane, chairman and ceo of Cone, said, “Strategically, from an operations standpoint, this makes the most sense in the world. It will provide a first-class denim operation.”
Cone was founded in 1891 by brothers Moses and Ceasar Cone, as a sales agency for textile mills. In 1895, the company built its first mill in Greensboro, calling it Proximity Manufacturing Co. to indicate the shift in the textile industry from its traditional New England roots to the Southern states where cotton was grown. The company went public in 1951 and was taken private in 1984 to fight off a hostile takeover attempt. The mill returned to the Big Board in 1992 and is one of the handful of domestic mills to retain a listing on that exchange, though late Tuesday, the NYSE said it would move to delist the stock.
Bakane was named ceo of Cone in 1998 and charged with turning the company around. Last year, he succeeded in stemming the flow of red ink, and Cone posted $11.4 million in net income after seven consecutive years of losses. Sales last year were $445.6 million. However, in the first six months of 2003, sales slipped 14.3 percent and the firm slipped back into the red. Bakane blamed a surge in imports.
“I wish we could have executed our strategy” and restructured the company without a bankruptcy filing, Bakane said. “But you’ve got to play the damn hand you were dealt.”
In particular, Bakane and Ross said a surge of Vietnamese-made jeans that Cone had alleged were made of Chinese denim had hurt the company’s results. While Commerce Department import data does not address jeans directly, figures show that imports of women’s and girls’ cotton pants from that country for the year ended in July came to $407.3 million, 13 times their level of a year earlier. Vietnam’s exports to the U.S. have exploded since the two nations established trading relations.
Mill executives called the combination of Cone and Burlington a logical move.
“From my perspective, ideally we’d like to see capacity retired,” said Keith Hull, president of marketing and sales at Graniteville, S.C.-based Avondale Mills Inc. “We still think we’re an overcapacitied industry. But short of that, if there’s some combination that brings good assets today, that’s good for all of us. I believe all those assets in both Cone and Burlington were assets that were fairly viable for the long term.”
At the New York headquarters of Galey & Lord Inc., which is in Chapter 11, chairman and ceo Arthur C. Wiener said, “Consolidation is part of the industry today, and I wish them well.”
The cancellation of Cone’s shares is likely to raise the ire of some shareholders, including dissident director Marc Kozberg, who is currently engaged in a proxy battle with Cone and — along with other investors holding a 9.5 percent stake in the mill — is seeking to have a new slate of directors elected. Kozberg said late Tuesday he was preparing to respond to the offer in an SEC filing, but declined to comment, citing legal reasons.
According to Cone’s preliminary proxy statement filed last month, the other major shareholder is Dimensional Fund Advisors Inc., a Santa Monica, Calif., firm with an 8 percent stake in Cone. Bakane holds a 1.5 percent stake, and recently retired chairman Dewey Trogdon holds a 1.9 percent stake.
Sources said one of the questions raised by Ross’ move is whether he’s considering making other acquisitions — he created International Steel Group, a Cleveland-based company his firm is in the process of taking public, out of the wreckage of three bankrupt steel companies.
Asked whether he’d consider other textile deals, Ross said, “Yes. I believe that one of the ways that American industries are going to have to cope with this foreign competition is by consolidation.”
Ross’ profile in the textile industry has risen dramatically in recent months. Just last year, he was known primarily by ceo’s of distressed mills in whose debt he was investing. But after he successfully challenged a February bid by Warren Buffett’s Berkshire Hathaway for Burlington, he got the industry’s attention.
He has since appeared on the lobbying scene, most recently joining forces with a group of textile associations that are lobbying the Bush administration on China policy.
In January, Cone and Ross agreed to a convertible-notes financing deal intended to help Cone build a new denim factory in Mexico. That deal was harshly criticized by Kozberg, the dissident Cone director. Competitors at other denim mills also questioned the need for additional denim capacity in North America, at a time when most fabric mills are seeing sales slip.
In addition to the Mexican joint venture, Cone operates five U.S. plants — four in North Carolina and one in South Carolina. It has about 3,200 employees.
Ross said combining the two firms, both of which are based in Greensboro, would call for some cost-cutting moves.
“There is also a lot of duplicitive overhead,” he said.
Executives at competing firms said one of the questions on observers’ minds was which executives would survive the merger. Few of the top officials at International Steel come from the predecessor companies, and when Ross’ bid for Burlington was approved, he handed out surveys to top executives that asked, among other things, if they wished to keep their jobs.