W.L. Ross Offers To Buy Struggling Textile Produce
Greensboro, NC, Sept. 16--Cone Mills Corp., the largest denim fabric maker, said on Tuesday it plans to file for Chapter 11 bankruptcy protection soon and accept a buyout offer from distressed asset fund W.L. Ross & Co. under court auspices.
The debt-strapped company, which defaulted on a $4.5 million bond payment due yesterday, is the latest in a long line of U.S. textile makers to succumb to harsh foreign competition that has cost thousands of workers their jobs and decimated a once-flourishing industry.
Greensboro, NC based Cone didn't disclose the terms of the offer from W.L. Ross, a $2 billion buyout firm headed by bankruptcy veteran Wilbur Ross. In August, Ross won approval to buy Cone competitor Burlington Industries in a bankruptcy court auction. One person familiar with the situation said Ross offered between $50 million and $75 million for Cone.
Ross said if his bid wins creditor and bankruptcy court approval, he will merge the denim operations of Cone and Burlington in Mexico and create a stronger competitor to counter Vietnamese denim that's flooded the market this year.
"Millions of yards worth of denim are pouring into this country at extremely cheap prices," Ross told Reuters. "That was the catalyst that forced them to file."
"We should be able to make it cheaper putting it all together," Ross added. "The output (Cone and Burlington) make tends to be complementary and they tend to sell to the same mix of customers."
Ross, who previously headed the bankruptcy advisory practice of N.M. Rothschild, employed a similar "roll-up" strategy in the last year for the stricken U.S. steel industry, merging two of the largest companies, LTV Corp. and Bethlehem Steel, into a new company called International Steel Group.
Ross began targeting the textile industry last year, buying large stakes in the debt of both Burlington and Cone in a move to win control of the companies through the bankruptcy court. Ross said he now holds some $85 million in Cone bonds at face value, or 9 percent, and about $33 million in bank debt, or about half. Cone has about $170 million in total debt, he said.
Cone said it plans to maintain normal business operations while in bankruptcy and that any sale of the company is subject to higher offers. Cone said it expects to complete the transaction in 90 days.
"Cone Mills expects to maintain a significant U.S. employee base, including a substantial number of manufacturing jobs," said Cone.
That plan contrasts with the most recent textile industry disaster, Pillowtex Corp., which on July 30 said it would shut down all 16 of its plants, terminate 6,450 workers and sell its assets to liquidators.
Cone said it expects to soon announce a bankruptcy "debtor in possession" financing package from a group of banks to pay vendors and creditors, as is standard during bankruptcies.
Cone supplies Levi Strauss, Gap Inc. and VF Corp. and others with denim and other fabrics.
Cone Chief Executive John Bakane harshly criticize relaxed trade barriers that led to a flood of foreign imports from countries including Pakistan, China and lately, Vietnam. Without federal help, conditions are likely to worsen for the industry when more quotas expire in 2005, experts say.
"Since January 2002 alone, 50 U.S. textile plants have closed and 30,000 jobs have been lost," said Bakane in a statement. "And now we're under assault by a new surge of imported Vietnamese jeans."
