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Henderson also noted how other firms have emerged from bankruptcy with excessive debt, only to be faced with renewed fiscal problems. In addition, he noted that Ross’s plan did not allow for Burlington to emerge from bankruptcy debt-free.
The Ross plan was contingent upon Burlington obtaining new debt. In addition, secured creditors would get repaid in cash, but unsecured creditors would only get stock in a reorganized Burlington.
Henderson said in the statement that the company isn’t ruling out a revisit to the Ross plan, but that would also depend on bidding procedures set by the bankruptcy court and other variables.
A Burlington spokeswoman said that procedures would be set up to allow others the opportunity to bid for Burlington. She declined to specify how many proposals the company entertained before deciding on Berkshire’s, or whether the company has received any indication of forthcoming bids during the auction.
Ross said he’s not aware of Burlington pursuing a "systematic" shopping process, or even of other proposals. "I’m not aware of any other bids," Ross said. "There has been no shopping of the company, which indicates to me a very Draconian set of bidding rules that were followed. They made it impossible for a third party to bid for the firm. We think that this is wrong. We’re already bidding more than Berkshire. We don’t understand why, other than perhaps job security, management would accept a lower bid for a higher bid. It is very inappropriate."
Buffett’s Berkshire does have a reputation for keeping management in place after it completes an acquisition.
Sheffield’s Lee, whose firm provides financial advice to the unsecured creditors’ committee, agrees with Ross. He called the Buffett deal a "low-ball offer relative to the value" of Burlington.
Under the Berkshire proposal, Lee explained, the Burlington stock is worthless, the bank debt gets paid in full, and there are still $400 million in trade claims and unsecured bond debt.