Byline: Arthur Friedman

NEW YORK — Writing the next chapter in the roller-coaster history of The Leslie Fay Co., the investment company Dickstein Partners has become the firm’s largest shareholder.
Dickstein, which is known for investing in companies it feels are undervalued, has informed Leslie Fay that its affiliates have acquired or contracted to acquire about 40 percent of the company’s common stock. Mark Dickstein, president, and Mark Kaufman, a vice president, have been appointed to the Leslie Fay board.
They replace David Morse of ING Equity Partners and Larry G. Schafran of Dart Group. Others on the seven-member board are corporate officers John J. Pomerantz, chairman and chief executive officer; John Ward, president; Clifford Cohn of Cohn & Associates; William J. Nightingale of Nightingale & Associates, and Robert L. Sind of Recovery Management Corp. Morse, Schafran, Cohn, Nightingale and Sind are all partners or principals in their investment firms.
In a statement, Pomerantz said, “With its substantial investment in Leslie Fay, Dickstein Partners has demonstrated tremendous confidence in our company and its prospects….We look forward to working closely with the new directors as we implement our strategic plan and continue our progress in returning Leslie Fay to a leadership position in the women’s apparel industry.”
Pomerantz was not available for further comment. However, a source close to the company said he and Ward were anxious to hear Dickstein’s plans and purpose in purchasing such a large chunk of stock.
“[Mark] Dickstein has not sat down with John Pomerantz to discuss his intentions,” the source said. “Given his [Pomerantz’s] stature as the son of the company’s founder and the person most credited with keeping Leslie Fay alive during its bankruptcy, he believes he deserves to know what Dickstein plans to do with what is, in effect, controlling interest in the company.”
For his part, Dickstein said in a statement that his firm’s investment “reflects our view of the opportunity at Leslie Fay.”
“We intend to work closely with the other members of Leslie Fay’s board and management to implement the company’s business plan,” Dickstein said.
He did not return phone calls seeking elaboration.
In its first post-Chapter 11 financial filing, Leslie Fay posted a second-quarter profit of $1.7 million, or 50 cents a share, and cited sales increases, improved gross margins and reduced expenses. Earnings in the period ended July 5 compare with a loss of $952,000 a year ago.
Sales in the quarter rose 16.1 percent to $23.2 million from $20 million. Gross margins in the quarter grew to 23.9 percent from 19.5 percent. Selling, general and administrative expenses dropped to 20.5 percent of sales from 28.6 percent.
In the half, Leslie Fay earned $6.9 million, or $2.03, against a loss of $838,000. Sales climbed 35.7 percent to $64.6 million, from $47.6 million. Margins in the half improved to 26 percent of sales from 22.2 percent. SG&A dropped to 17.6 percent from 27.7 percent.
About half of the firm’s sales are derived from its signature dress line. It also manufactures Leslie Fay sportswear, Outlander and Hue brand names. It has also reintroduced Haberdashery Sportswear and plans to relaunch Leslie Fay Evenings fall 1998 along with a new moderate-suit line.
Dickstein’s stock purchase took place over several weeks. It included buying large blocks of stock from several vulture funds that had purchased the debt of the creditors’ committee of the old Leslie Fay prior to its reorganization as a new company. It also bought on the open market. Leslie Fay’s stock closed Thursday at 12 1/8 in over-the-counter trading, making Dickstein’s stake in the company worth about $16.5 million.
Leslie Fay emerged from a five-year stay in bankruptcy in June. Its well-documented financial troubles began in 1993, stemming from an accounting fraud that led to the indictment of two of its former financial executives.
The 50-year-old company does not have a poison pill in place that would prevent an individual investor from purchasing a large amount of stock in a short period of time.
Pomerantz and Ward have options to buy up to 10 percent of the company’s shares, but have yet to exercise that option, a spokesman said. They also have what is called a “home-run provision,” which allows for an additional 7.5 percent stock option if the company is sold or there is a change of controlling interest.
Dickstein’s holdings in the apparel industry have centered on retailing. In recent years, it has gained controlling interest in Carson Pirie Scott & Co. and Hills Stores by purchasing debt while the firms were in bankruptcy and then converting it into an equity stake once the retailers emerged from Chapter 11. It has since relinquished controlling interest in both firms.

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