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W.L. Ross Tries Again: Bankrupt Burlington Accepts $608M Bid

Bankrupt Burlington Industries accepted a $608 million bid by W.L. Ross & Co. Friday, which serves as the base price for today’s court-approved auction.

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NEW YORK — The latest round of bidding for the bankrupt Burlington Industries Inc. once again has financier Wilbur Ross staking his claim.

Burlington Industries accepted a $608 million offer by W.L. Ross & Co. on Friday, which serves as the base price for a court-approved auction set for today.

This is Ross’ second attempt to buy Burlington. The bankruptcy baron, who is head of the textile firm’s unsecured creditors committee, was outbid by Warren Buffett’s Berkshire Hathaway in February. The committee subsequently filed court papers in Delaware seeking a review of the negotiation process that led to the Berkshire bid. As reported, Berkshire eventually walked away from its $579 million offer when it failed to get the terms and conditions it wanted on a breakup fee.

Ross and others submitted their bids earlier this month as required by the procedures set forth by the bankruptcy court.

The Ross agreement announced on Friday contemplates the concurrent sale of Burlington’s Lees Carpet business to Mohawk Industries Inc. Essentially, that means that Ross, if successful in his quest, would buy Burlington and receive payment from Mohawk for Lees. Ross’ equity fund would then be responsible for funding the balance of the purchase price to acquire Burlington. How much Mohawk would pay Ross could not be learned.

Today’s auction procedures provide for a breakup fee of 1 percent of the proposed purchase price and requires bidding increments of $3 million. To outbid Ross, the successful bidder would have to submit an initial offer of nearly $617.1 million, as well as receive bankruptcy court approval of the sale.

George W. Henderson 3rd, chairman and chief executive officer of Burlington, said in a statement, “We are pleased that the bidding process is coming to a conclusion and we believe that it will enable us to maximize the value of the company and produce the best results for our customers, employees, suppliers and creditors.”

The results of today’s auction are expected to be submitted for bankruptcy court approval on July 31. If approved, the sale would be incorporated into a plan of reorganization, which would then be submitted to creditors for their vote.

Assuming that the Ross bid remains successful, the parties are expecting the sale to close in October. Unsecured creditors, assuming no adjustments to the purchase price, are likely to receive a distribution in the range of 40 percent of allowed unsecured claims. Secured creditors would get repaid in full.
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Ross, chairman of W.L. Ross & Co., said in a statement, “Lees will benefit from Mohawk’s financial strength and business synergies. Burlington’s other operations also will be deleveraged and as privately owned businesses will function even more efficiently and responsively to meet the needs of their customers. Employees will no longer have to worry about the financial viability of their company.”

Bob Lee of Sheffield Merchant Banking Group, financial advisor to the unsecured creditors committee, said in a statement, “The Burlington management team and its advisors ran a very full and effective process. The committee supports the proposed transaction and is pleased that this process indicates an improvement from prior offers.”

Some bankruptcy observers, who knew Ross was keeping close tabs on Burlington, had predicted that his bid would be accepted as the stalking horse to set the baseline for the auction. That’s in part due to his know-how in finding diamonds among distressed firms, as well as his expertise in putting together successful bids.

Ross’s private equity firm manages funds that are owed $81 million of Burlington unsecured bonds and accrued interest of $1.4 million, as well as $7 million of Burlington bank debt.

Ross built his reputation during his 24-year stint at Rothschild Inc., where he demonstrated a shrewd eye for value among firms headed toward the graveyard. During his tenure at Rothschild, he and his small staff were involved as advisors in some of the biggest Chapter 11 newsmakers: Texaco, Continental Airlines, TWA and Revco.

He left two years ago when he founded his own firm. No longer in the advisory business, Ross focuses on buying distressed assets. In the last three years, he has been a major player in the steel industry through his merging of two bankrupt giants, Bethlehem Steel and LTV, into International Steel Group. Ross’ firm paid $325 million for LTV and $1.5 billion for Bethlehem.

He does extensive research in his office, which is filled with a collection of contemporary photographs, many collected from his extensive travels around the world.

The Greensboro, N.C.-based Burlington filed for Chapter 11 bankruptcy court protection on Nov. 15, 2001, in Delaware. For the year ended Sept. 28, Burlington recorded a $100.8 million net loss, which came to $1.89 a diluted share, deeper than the $91.1 million, or $1.73 a share, deficit a year earlier. The loss included $146.5 million in income tax benefits and $165.8 million in pretax restructuring charges. Sales slipped 29.2 percent to $993.3 million.
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In the last year, Burlington has since cut its apparel fabrics manufacturing capacity by half. It also moved its apparel headquarters to Hong Kong, where the Burlington Worldwide division now sells apparel fabrics manufactured at Burlington’s plants in the U.S., Mexico and India, as well as fabrics made under contract by independent mills throughout Asia.

It is Burlington’s increasingly global scope that has had some financial sources believing all along that there would be interested purchasers for the bankrupt company’s assets.

When Berkshire made its bid earlier in the year for the entire company, some close to the unsecured creditors committee felt that Burlington’s parts could be worth more than its whole. That belief came to fruition in the latest Ross bid, with Lees being spun off to Mohawk as part of the deal.

What remains a question is whether other firms will step up to the plate to bid on the different parts of Burlington. Even if they do, Ross could still walk away with the prize. If the bids, assuming they are made, in the aggregate don’t represent a higher offer, then Ross will end up as majority shareholder of Burlington.