BABCOCK OUT, POMERANTZ STAYS IN AT LESLIE FAY
Byline: Arthur Friedman
NEW YORK — John J. Pomerantz has agreed to remain as chairman and chief executive officer of a smaller, leaner Leslie Fay Cos. as it completes its Chapter 11 plan of reorganization, it was learned Tuesday.
However, Michael J. Babcock, president and chief operating officer of The Leslie Fay Cos., has resigned, as has Donald Ochs, senior vice president of worldwide sourcing.
Under the plan, the company will focus on and separate its dress and sportswear divisions, as well as its Nipon, Outlander and Castleberry lines.
Leslie Fay will sell or spin off its Sassco unit to creditors or as a separate entity with its own equity.
Sources said an official announcement on these developments, as well as an outline of the troubled company’s reorganization plan, is expected today. Reportedly, Pomerantz was asked to stay on by the firm’s board and the creditor’s committee.
The reorganization outline, which sources said has the support of the company’s credit committee and has been discussed with its equity committee, envisions the 48-year-old company emerging from bankruptcy as a smaller, tighter firm focused solely on its core dress and sportswear business.
As reported, Sassco’s chairman, Arthur Levine, has said he wants to buy back the company he sold to Leslie Fay in 1979.
The Sassco division, which produces Kasper suits and dresses, the Le Suit line, Albert Nipon Suits and the Nolan Miller collection, is the company’s largest and most profitable unit. It 1993, it accounted for $335 million of Leslie Fay’s $660 million in sales. Sources have put a price tag of $200 million to $240 million on the Sassco business. Levine could not be reached for comment.
Should the Sassco sale fall through, Leslie Fay’s current stockholders may receive warrants to purchase shares of Sassco and stock or warrants of the reorganized Leslie Fay core businesses.
Leslie Fay has until Feb. 17 to submit an exclusive reorganization plan, but sources said the creditors’ committee has already seen and approved the final plan.
Leslie Fay has been operating in Chapter 11 bankruptcy since April 1993. It was forced into the courts after it announced two months earlier that an accounting scandal had misstated it earnings from 1990 to 1992. The U.S. Attorney’s Office in Scranton, Pa., which is investigating the fraud, said the company misstated its earnings to the tune of $119 million over the three years.
It was Babcock who reportedly called Pomerantz to break the news of the scandal to him. Babcock, 53, came on board in October 1992. Prior to that he was president and ceo of Galerias Preciados, the Spanish department store chain, and had been president and ceo of the L.J. Hooker Group.
During his tenure, Babcock took over Leslie Fay’s chief financial responsibilities after Pomerantz was relieved of those duties by the board. Babcock also led bitter negotiations with the company’s union during a strike that shut down its domestic plants. Union members singled out Babcock, staging a huge protest in front of his Connecticut home, as well as at the company’s Broadway headquarters.
In separate reports on the accounting scandal, conducted by Arthur Andersen & Co. for the company’s audit committee, and by Charles Stillman, a special court appointed examiner, senior management — including Pomerantz and Babcock — were cleared of any wrongdoing.
Donald F. Kenia, the company’s former controller, has pleaded guilty to filing false financial statements with the Securities & Exchange Commission and is said to be cooperating in the ongoing investigation. Kenia’s plea agreement stipulates that his sentence will depend on his “level of cooperation.”
Since the scandal broke, the company has suffered several blows.
Last summer, Leslie Fay announced it would close its factories in Pennsylvania to cut costs, resulting in a six-week strike by the ILGWU that severely hurt the company’s fall business. The strike ended when the company agreed to keep half of the 1,200 union jobs in Wilkes-Barre area of Pennsylvania.
In October, Leslie Fay pulled the plug on its Theo Miles label, which it had touted as its big chance for a turnaround. The omnibus label, launched to challenge the giants of better-priced sportswear — Liz Claiborne and Jones Apparel Group — never hit its stride once the company’s financial troubles came to the surface. John Pomerantz’s wife, Laura Pomerantz, who was executive vice president of the company in charge of Theo Miles, resigned when the label was dropped.
In the meantime, overall business had fallen off, forcing the company to revise its financial forecast down three times. Last month, the company said it expects to report “a substantial operating loss for the year,” although it wouldn’t be as bad as last year’s $32.6 million operating loss.