NEW YORK — Malden Mills Industries, maker of Polartec polyester fleece, has filed for Chapter 11 bankruptcy protection as a precursor to selling the firm to Gordon Brothers Group for $44 million.
The Lawrence, Mass.-based company said in a statement it voluntarily filed for Chapter 11 to “provide an efficient environment for completion of the sale.” However, Malden Mills added it would consider better offers made during the reorganization period. The sale is targeted for completion by the end of February.
Michael Spillane, chief executive officer, said Malden Mills’ board voted to put the company up for sale at the end of October. Spillane, a former Tommy Hilfiger executive who took over as ceo in July 2004, said the firm had struggled to get out from under substantial liabilities since reemerging from bankruptcy in 2003.
“Based on our balance sheet, we have $45 million of term debt that was due this year, so the timing made sense,” Spillane said. “No buyer is going to want to pick that up. The board recognized that, as did our stakeholders. It became obvious that we were going to do an asset sale.”
The pressures of the retail environment left little, if any, room for Malden Mills to pass on increased costs to customers. Spillane pointed to an underfunded pension program dating to the late Nineties and costs associated with conducting environmental cleanup at the former site of the company’s Lawrence plant, which burned down in 1995, as examples of “legacy liabilities.”
“We spent $2 million this spring cleaning up what was the site of the fire in 1995,” he said. “We’ve had this toxic site sitting there that we hadn’t dealt with, which we had a moral and legal responsibility to take care of. Our customers today don’t want to pay for that sort of thing.”
Spillane said Malden Mills’ commercial segment, which deals predominantly with outdoorwear, had continued to grow. However, business has declined by one-third in the company’s military segment, which supplies all divisions of the armed forces. He attributed much of this drop to the manner in which the military purchases and implements new apparel systems.
“Some years they buy, some they don’t,” he said.
Spillane characterized Malden Mills as a viable business, generating annual sales of $150 million to $200 million. But efforts to rapidly expand product offerings and position the company as a branded global technology force were hindered by the debt load. During his 30-month tenure, Spillane said the firm had conducted 25 loan amendments.
Malden Mills’ facilities in Lawrence and in Hudson, N.H., will continue normal operations, the company said in the statement. Spillane said indications from Gordon Brothers are that members of current management will continue in their roles.