NEW YORK — The white knight galloped away.

This story first appeared in the March 3, 2003 issue of WWD. Subscribe Today.

Warren Buffett’s Berkshire Hathaway late Friday pulled its $579 million cash offer for Burlington Industries off the table.

That left industry observers, who reacted with dismay to the news, speculating that a breakup of Burlington — once the largest textile company in the world — was all but inevitable. They speculated that chairman and chief executive George Henderson might be planning to return from the ashes of bankruptcy at the head of Nano-Tex LLC, the technology venture that develops and licenses out nanotechnology enhancements to fabrics in which Burlington owns a majority interest.

Henderson was not available to comment Friday, but in a statement he called the news “unfortunate.”

A breakup would be just fine with Wilbur L. Ross Jr., head of W.L. Ross & Co. and of Burlington’s unsecured creditors’ committee.

“We [were] not interested in their bid at the current level anyway,” Ross told WWD.

Berkshire made its decision after a bankruptcy court on Thursday shot down its request to be paid a $14 million breakup fee if Burlington accepted another bid. The court also struck down a request that other bids would have to exceed the $579 million offer by $5 million to be accepted.

Bankruptcy baron Ross is working on assembling a consortium to bid for Burlington’s assets. He said that creditors plan to contact 50 to 60 firms, both financial and strategic buyers, to assess interest in Burlington’s pieces.

He said that Cone Mills and carpet maker Mohawk Industries are among the parties interested in bidding for parts of Burlington. He said that Cone is interested in Burlington’s Mexican denim mill, while Mohawk is interested in Lees Carpets.

Cone officials could not be reached for comment Friday. But the Greensboro, N.C.-based mill recently arranged a proposed $27 million convertible financing deal to help it expand in Mexico. That deal has raised the ire of dissident director Mark Kozberg, who contends it would water down Cone’s stock and is preparing a proxy fight against the proposal.

The financing for Cone’s proposed expansion is coming from Ross’ company, which sources said could smooth the way if Cone wanted to bid for the Mexican mill, which is Burlington’s sole remaining denim mill in North America.

Sources have also contended that there is already a glut of denim mills in Mexico and the U.S., which suggests there would two advantages to Cone buying Burlington’s mill: It would both avoid the time and expense of building from scratch and eliminate a potential competitor.

“That would be logical,” said consultant Nick Hahn, of Hahn International, about the possibility of Cone buying the Mexican facility. “For anyone to put up additional denim production in this hemisphere doesn’t make a lot of sense.”

Lees Carpet is the current jewel among Burlington’s operations. In the fiscal year ended Sept. 28, it accounted for 26 percent of Burlington’s $1.01 billion in revenue and posted pretax profits of $36.8 million. For the last two years, it has been Burlington’s only profitable operation.

Observers have speculated that Berkshire’s main interest in Burlington had been Lees, which it could have merged into its Shaw division.

On Friday, John Swift, chief financial officer of Mohawk, said his company was “definitely” interested in Lees Carpet, and that firm was working with Ross to put together a combined bid. He also said that there was interest on the part of other firms in Lees and other Burlington assets.

Among U.S. textile executives, who’ve weathered a storm of nearly constant bad news for the past few years, the news of Buffett’s interest in Burlington had been a ray of hope. With his pullout Friday, it was as if the last bit of hope had left Mudville.

“A lot of people were counting on thisto spark interest in the industry,” said one textile executive who has weathered the bankruptcy process in recent years and asked for anonymity.

In a statement, Henderson said, “We are reviewing our alternatives in light of these developments, including a process to solicit new proposals. We expect to advise the bankruptcy court of our thinking [this] week and intend to move the process forward.”

Burlington retains the exclusive right to file a plan of reorganization through May 31.

Buffett, in the same statement, said, “We’re sorry to have to terminate our offer. We trust and admire the Burlington team and hope the company can emerge from bankruptcy debt-free.”

Burlington’s revenues peaked at $2.21 billion in 1995, but the company has since radically downsized, running through wave after wave of layoffs and shutting down underperforming operations. It finished last year at half its peak size in revenues.

In addition to Lees and the Mexican mill, it has a yarn joint venture in Mexico with Parkdale Mills and a denim joint venture in India.

Its major new initiatives in recent years have been Nano-Tex and Burlington Worldwide, a Hong Kong-based unit that contracts out production of fabrics to foreign mills.

Sources said they believed Henderson might want to focus his energies on Nano-Tex if the company is broken up. “I know that Nano is his baby now,” said the textile executive who requested anonymity. “Maybe he would try to go with that”

As reported, Burlington’s acceptance of Berkshire’s bid on Feb. 11 resulted in the mill rebuffing a separate offer from Ross’ private equity firm that would have enabled Burlington to emerge in a stand-alone plan of reorganization, but not debt-free. Buffett and Ross squared off when Ross and the unsecured committee raised questions over Burlington’s shopping of its assets, charging that the mill focused only on one bidder when it should have opened the process to others.

Credit analysts told WWD that the sum of Burlington’s parts was likely to bring in more value to the mill’s creditors than a single deal. They explained that other than Berkshire, there weren’t many candidates who could afford to buy the entire company when they were only interested in one part of the operation. The current economic environment, one creditor said, isn’t conducive to a purchase with the intent of selling the unwanted parts outside of a Chapter 11 proceeding.

Textile sources also noted that, given the state of the U.S. textile industry and Burlington’s woes, there are not likely many companies that would want to buy the whole operation.

Ross said he was pleased with Delaware Bankruptcy Court Judge Randall Newsome’s ruling that bidders interested in buying pieces of Burlington could band together.

“We view that as very important to us,” he said. “What the judge ruled was that firms interested in the different parts of Burlington could band together as a consortium and submit a combined plan proposal for the whole thing. Burlington is a situation where the value of the sum is greater than its whole.”

Ross said that his equity firm doesn’t mind “being an assembler of a consortium. There has been much interest in many of Burlington’s different [assets]. We’re happy to act as a consolidator of a bid. As a financial buyer, whatever pieces others are not interested in, we’ll be glad to take.”

The committee already has one bidder ready to take part in the consortium Ross proposed.

While Buffett’s bid meant cash for Burlington’s creditors, for many textile executives it also brought hope. The sagelike investor is closely watched on Wall Street, and while his investment didn’t prompt a rally in the few U.S. textile stocks left on major exchanges, executives said they hoped it would prompt some renewed interest in the industry.

Buffett’s departure Friday yanked that hope away.

“Apparently, our friend Warren Buffet didn’t have enough confidence in Burlington or in the American textile industry to want to push this thing to the next level,” said Hahn. “He’s got the money to do it, so I don’t think that was the issue.”

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