W.L. Ross/Burlington Update

New York, NY, Aug. 14--Ask Wilbur Ross why he recently agreed to pay $620 million for the bankrupt Burlington Industries and he is likely to tell the dirty necktie story, according to a story in the New York Times. A few months ago Ross, a Burlington creditor long before he became a would-be buyer, visited the company's headquarters in Greensboro, NC. There, he watched, wincing, as George W. Henderson III, Burlington's chief executive, spread out a necktie and dotted it with blobs of ketchup, mustard and red wine. "It was a pretty expensive Hermès tie," Ross recalled. But then the Burlington chief picked up a cloth, took a few swipes at the soiled tie and it was back to its pristine, unstained self. The tie had been treated with a substance invented by Nano-Tex, a little California company. Burlington owns 51% of Nano-Tex, and scarcely a week after Burlington accepted Ross's bid, he was talking about using Nano-Tex technology on Burlington fabrics and licensing it to makers of sheets, towels and other items Burlington does not make. "Putting just $20 million into this little business could do wonders for it," he said. Clearly, Ross is banking that new technology can help dig Burlington out of the hole that is swallowing the entire American textile industry. He knows that products from overseas, made with cheap labor, will continue to flood the market, and that Burlington, like its American competitors, can survive only by shifting more manufacturing offshore. But he asserts that Burlington's strong brand, and a focus on innovation, can keep it viable. Ross's plans for saving Burlington differ markedly from the ones that Warren Buffett evidently had in mind when his investment company, Berkshire Hathaway, made an unsuccessful bid to buy Burlington this year. Lees Carpet, Burlington's largest and most profitable division, might have been a perfect fit for Shaw Industries. Buffett said that he intended for Burlington to report to Shaw, and few analysts expected him to invest much time or money in Burlington's other assets. In contrast, Ross arranged to sell Lees to Mohawk Industries even before he made his bid. One reason, he said, was to free money for investing in Burlington's other businesses. He also plans to cut Burlington's $50 million corporate overhead, and to sell or rent its huge headquarters. He said he would probably maintain a small headquarters staff in Greensboro. As Ross ticks off his plans and hopes for all of Burlington's businesses, he sees growth opportunities for Burlington House, a $200 million upholstery fabrics business that, with carpeting gone, is now Burlington's largest operation. "If they did more with branding and decorative fabrics, they could be much bigger," Ross said. "And if they added Nano-Tex to fabrics, so hotels don't have to replace chairs and such that often, they could be bigger still." Ross began his involvement with the firm as a short seller, betting that the share price would plummet. That was even before Burlington, then $1.1 billion in debt, filed for bankruptcy in November 2001. After that filing, he began buying up that debt. In its fiscal year that ended in September 2001, the company lost $91.1 million on sales of $1.4 billion. Ross said his firm, as lead creditor, played a big part in persuading Burlington to contract out some production to low-cost manufacturers in China. That move, he said, freed cash that Burlington had tied up in inventory, and helped the company pay off debt. He readily concedes that his ultimate goal is to take Burlington public again. But he says he is in no hurry. In the meantime, he does not rule out possible plant closings or exits from some businesses — but he does not see them as inevitable, either. Burlington is now profitable, he said, and its debt is manageable. "This company is not bleeding any more," he said. "And we just don't have to go in with a big machete and break it up."

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