Issues decided, will P'tex bidders line up?
Brent Felgner -- Furniture Today, September 1, 2003
New York — With the timetable extended for the Pillowtex auction and bid qualifications eased, an attorney for Pillowtex's unsecured creditors' committee believes there may be a very active auction of the company's assets during an Oct. 2 liquidation.
"We've had dozens of calls expressing interest" in various Pillowtex assets," Mark Power, a partner with Hahn & Hessen, New York, said in a telephone interview last Friday. "A number of very credible parties have expressed their interest, and we're hopeful it will be a lively auction."
Power indicated there was a "wide range" of companies interested in joining the bidding, perhaps including liquidators, foreign and domestic textiles companies, and equipment companies. He declined to identify any by name.
The assessment came after a U.S. bankruptcy court judge last Thursday ratified a negotiated settlement between Pillowtex, its stalking horse bidder, GGST, creditors and potential suitors. Those groups had earlier wrangled over bid qualification, terms of the auction and terms of the GGST contingency sale.
The agreement came following a week of "very intense" negotiations, Power said. "Initially, we made no progress at all and thought that we'd end up opposing the stalking horse" after GGST refused to soften its positions.
But negotiations apparently began in earnest after U.S. District Judge Peter Walsh, chief of the U.S. Bankruptcy Court for the District of Delaware, gave strong indications a week earlier that he was tending toward many of the objections filed against the proposals.
The settlement provided, in part:
• An extended timetable, setting Sept. 29 as a bid deadline, Oct. 2 for an auction and Oct. 7 for a court hearing to ratify the result.
• A provision for "component bidding" allowing interested parties to compete for specific assets individually or in smaller groups than previously permitted. The earlier proposal allowed only for an all-or-nothing bid on the entire company, except cash, accounts receivables and inventories. Now bids at an auction must be considered in three separate phases to permit a full and fair assessment of the offers.
• Provisions reducing obstacles to qualifying bidders, such as audited financial statements and limiting access to due diligence information. It also reduced the threshold for outbidding GGST to just over $2 million.
• An agreement that GGST will reduce its break-up fees and expenses, lowering them by roughly $710,000, to $1.54 million. GGST said it might not move forward without the fees.
Overall, the new agreement stipulated that bids "must be on terms that are not materially more burdensome or conditional than the terms of the original agreement" with GGST.
The four-company joint venture, formed specifically for the Pillowtex liquidation, had made a bid of $56 million, but that value increased to more than $88 with the addition of $17.7 million in liabilities and $14.4 million in carrying costs.
The creditors committee's Power termed the settlement "fair."
"It's very difficult when you have to submit a bid for the entire company," he explained in the interview. "You have to have a partner and, in addition to conducting due diligence on Pillowtex, you have to do due diligence on your partner. These are diverse assets, and it's not an easy thing."
The creditors committee has also retained Trenwith Securities, a Los Angeles investment banking concern, to consult and advise Pillowtex and the committee on the liquidation. Pillowtex attorneys pledged cooperation, if not agreement with any recommendations that might be forthcoming.
The settlement's approval came during a 40-minute bankruptcy court hearing during which most objectors, including the creditors committee, suitor Broome & Wellington, UNITE, the Pillowtex union, and the company's secured lenders rose one-by-one to sign off on the deal. Notably absent from the hearing was Welspun India, which had earlier complained the original timetable didn't allow it adequate time to formulate a bid.
"We are seeing a lot of interest," offered Pillowtex president and cfo Michael Harmon, during an interview following the hearing. He, too, declined to identify specific suitors. "Certainly the home textiles industry is still very depressed, just look at the financial statements" of other companies.
"They're all benefiting from Pillowtex not selling [at retail]," he continued. "But I don't think the sell-through has changed" with an improving larger economy.
Harmon said he was hopeful there would be active bidding but said it was unlikely unsecured creditors would receive any payout if the GGST proposal wasn't outbid.
"Our No. 1 objective is to find people to overbid," Harmon said. "We know there are a lot of people interested."
He added: "The longer the brands are off the shelves, the harder it will be for them to earn their place back at retail. And potential bidders realize that."
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