LESLIE FAY TRIMMING OPERATIONS
Byline: Arthur Friedman
NEW YORK — As part if its attempt to be a “smaller, leaner” company, The Leslie Fay Cos. has begun to significantly downsize its corporate office, eliminate certain functions and streamline its organization.
The company said Wednesday it hopes the moves will result in annual savings of about $15 million. To assist in this process, Leslie Fay said it has retained Jay Alix & Associates, a management consulting firm.
These actions come as the beleaguered apparel maker unveiled the outline of its reorganization plan to emerge from Chapter 11.
In conjunction with the reorganization plan, John J. Pomerantz will remain as chairman and chief executive officer, as reported in these columns Jan. 25. The company also said that the resignations of Michael Babcock as president and chief operating officer and Donald Ochs as senior vice president of worldwide sourcing and manufacturing, reported in the same article, came as a result of its plan to “downsize the company” and focus on its core dress and sportswear business.
Under the plan outline, which has the support of Leslie Fay’s creditor’s committee and has been discussed with its equity committee, the company will concentrate on its signature brand in dresses and sportswear, as well as its Nipon, Outlander and Castleberry lines. Leslie Fay said it will either sell its Sassco business or spin it off to creditors as a separate entity with its own equity.
The company said it has been involved in active negotiations with a potential buyer, who is understood to be Arthur Levine, Sassco’s chairman and founder. Sassco makes the Kasper suits and dresses brand, the Le Suit line, and the Albert Nipon Suits and Nolan Miller collections.
“We’re in the midst of negotiations with creditors, and there are still a lot of details to be worked out, but hopefully we’re getting close to the end,” Levine said Wednesday. “I continue to be hopeful that we can work out a deal.”
Leslie Fay said it might agree to a sale “if the buyer offers an agreeable price to the company and its creditors and obtains appropriate financing.” Sources have put the price at around $240 million.
Under the reorganization outline, creditors would receive new equity in a company owning the core businesses, as well as cash resulting from a sale, or debt and equity securities from a spinoff of Sassco. Considered the sales leader in women’s suits with its Kasper for ASL label, Sassco had a volume of about $350 million in 1994.
Leslie Fay’s current stockholders may receive warrants to purchase shares of Sassco if it is not sold, and stock and/or warrants of the reorganized Leslie Fay in amounts and prices to be determined.
“From the beginning of the Chapter 11 process, our main objective has been to develop a consensual plan of reorganization that serves the best interests of creditors, customers, employees, shareholders and other key constituencies,” said Pomerantz in a statement.
The firm said Wednesday that Pomerantz was asked by the board and creditor’s committee to continue leading the company that was founded by his father, the late Fred Pomerantz, in 1947.
“We believe this outline is an important step toward that objective,” Pomerantz’s statement continued. “We are confident that spinning off Sassco as a separate entity or selling it to a qualified buyer is the best way to maximize return to creditors. This should enable Leslie Fay to emerge from Chapter 11 with its core businesses intact so that we may continue to serve our longtime customers in the department store and specialty retail businesses.”
All aspects of the proposed reorganization plan are subject to court approval. The company has until Feb. 17 to present an exclusive reorganization plan to the bankruptcy court here.
Pomerantz credited Babcock with “spearheading the effort to restructure and centralize our organization, reduce costs and develop a sound business plan to carry our company into the future.”
Babcock joined Leslie Fay in October 1992, after a career in retailing. He had been chairman and ceo of Galerias Preciados in Madrid; president and ceo of L.J. Hooker Retail Group, with responsibility for stores such as Bonwit Teller and B. Altman; chairman and ceo of Filene’s, and president and ceo of G. Fox & Co.
“When I decided to join Leslie Fay more than two years ago, the company had nearly $1 billion in sales and plans for further expansion,” Babcock said in a statement. “Shortly after I arrived, however, we learned of the accounting irregularities, which ultimately led to the Chapter 11 filing and subsequent restructuring and downsizing of the company — a process I agreed to oversee. Now, as we begin to prepare for Leslie Fay’s emergence from Chapter 11. I feel my mission has been completed and it is time for me to pursue new challenges.”
Leslie Fay has been in bankruptcy since April 1993, two months after it revealed that an accounting fraud had falsely misstated earnings. An investigation by the U.S. Attorney’s Office in Scranton, Pa., has determined the company falsely reported $119 million in earnings from 1990 to 1992.