AVONDALE, NOT GALEY & LORD, AGREES TO BUY GRANITEVILLE
Byline: Jennifer L. Brady
NEW YORK — In a surprising turn, Avondale Inc. has agreed to buy denim producer Graniteville, which in a deal pending since September was to be acquired by Galey & Lord.
Avondale said Thursday it has entered a letter of intent to buy Graniteville from Triarc Cos. for $255 million in cash.
The Galey & Lord agreement, also a letter of intent, was for stock and the assumption of Graniteville debt. G&L would have issued about 6.4 million shares, and it would have assumed $174 million of Graniteville debt. At the time that deal was made, Galey & Lord stock was selling for about 12 1/2. On Thursday, the stock closed at 10, down 5/8. Based on the current stock price, the G&L deal would have added up to $238 million.
Either deal would create an apparel textile giant, doing over $1 billion in sales.
For its part, G&L reported Thursday that it will take a $1.6 million writeoff for the costs of the failed merger with Graniteville. After the charge, G&L reported a loss, in the first quarter ended Dec. 30, of $753,000 against a profit of $4.8 million, or 40 cents a share, a year ago. Excluding the charge, net income in the latest quarter would have been $228,000, or 2 cents a share.
Graniteville, based in Graniteville, S.C., posted 1994 sales of $536.9 million; it manufactures high-end denim fabrics and dyes and finishes 100 percent synthetic and blended cotton and polyester apparel fabrics.
G&L, which posted sales of $502.2 million in 1995, is the only vertical producer of corduroy in the U.S. It also is a leading supplier of wrinkle-resistant bottomweight cotton fabrics.
Avondale, based in Monroe, Ga., is a major producer of sale yarns, denim fabrics and greige fabrics for apparel, home furnishings and industrial applications. Its position in denim along with Graniteville’s will give the combined operation a particularly strong place in the denim arena.
Analyst Jay Meltzer, managing director of Johnson Redbook, said the two companies make a good fit. Avondale has expertise in yarn and other areas that Graniteville lacks, and there are some areas where Graniteville can help Avondale. “The merger would be a step forward in the general consolidation in the textile industry, if indeed it materializes,” Meltzer said, noting that there was a similar letter of intent with Galey & Lord and that had fallen through.
Stephen Felker, chairman and chief executive officer of Avondale, said in a statement, “The acquisition of Graniteville has been a long-term goal of Avondale; this transaction will strategically position Avondale to provide its customers with improved service selection and volume.” Avondale said it intends to “dedicate significant corporate resources to the continuing modernization” of the Graniteville plants. G&L, in a statement Thursday, said that it and Triarc mutually agreed not to go forward with their plan due to economic conditions in the retail, textile and apparel industries. “In the process of evaluating and negotiating, times changed and the retail climate changed in ways that made a merging of the two companies not practical,” said Arthur Weiner, G&L chairman and ceo, in a telephone interview. “Everyone has to make a judgment that they feel is best for them, and we wish them well.”
Triarc said that part of the proceeds from the Avondale deal will be used by Triarc to repay Graniteville’s existing debt.
Consummation of the transaction, expected in April, is subject to a definitive agreement, antitrust clearance and other regulatory approval.
In its earnings report Thursday, G&L said operating income sank 70.2 percent to $3.2 million from $10.9 million. Net income, it said, was knocked down by a drop in gross margins due to the impact of lower sales on manufacturing costs. Gross margins as a percentage of sales slumped to 7.6 percent from 12 percent.