The following is an excerpt from Wilbur Ross’s book Risks and Returns: Creating Success in Business and Life.
Among my major acquisitions at WL Ross & Co. was Burlington Mills. Burlington was one of the leading textile mills in the United States but it and J.P. Stevens, another iconic mill, were suffering severely from foreign competition, mostly from Asia, as the apparel and other fabric-consuming industries moved there. Burlington had grown to eight thousand employees since its founding in 1923, but went bankrupt in 2001 with $800 million in debts and a mountain of unfunded pension liabilities. Those facts caused it to file for Chapter 11. Its unsecured bonds then collapsed, and we bought quite a few. I became chairman of the unsecured creditors committee, and prepared to bid for the company. Because Burlington was an established name in the industry, and had a reputation for producing high-quality products, we believed we could buy it and return it to profitability.
But as it turned out, someone else had a similar theory of the case: Warren Buffett, perhaps the most brilliant investor of all time.
Warren Buffett bids
Warren Buffett’s experience in the textile industry ran deep: he had built Berkshire Hathaway from the remnants of a failed textile company, and he had recently bought Fruit of the Loom, so he knew the value of what he was acquiring, just as I did. But where were diverged was on how we would bid for the company. Warren’s style is to decide on the value of something, bid it in cash, and if someone overbid, let it go. I and the other bondholders decided to outbid him using at par bonds in lieu of cash bonds that were trading at a steep discount.
In bankruptcy court, Warren tried to convince the judge that WL Ross & Co.’s bid should be disregarded, claiming cash was a more valuable currency than defaulted bonds. I was even put up for cross-examination. When his lawyer, a famous bankruptcy practitioner from Jones Day named Bill Hayman, questioned me, his line of attack was to argue that surely cash was a better bid than our equity proposal. My response was that the committee owned more than two thirds of the bonds, and we preferred to take the equity. Since it was our investments that were at risk, not Buffett’s, the court should not impose an unwanted solution on us. In the end, the judge agreed: “If the unsecured creditors prefer stock to cash, I will not overrule them.” We won.
A modest billionaire
Buffett is good-natured enough that this one victory did not preclude us from having a good relationship afterward. Sometime later, he and I were seated together at the White House Correspondents’ Dinner. Someone wanted to photograph the two of us together. Warren said to me, “Let’s give them a scene of you and me fighting over my wallet!” We staged a grappling match, and the press got their picture. Afterwards he confided to me, “Wilbur, it really wasn’t worth fighting over. I only had one hundred dollars in it!”
Buffett’s living habits reflect his general good nature. Unlike most billionaires, Buffett lives in the same modest house he bought in Omaha decades earlier. His food tastes are also unchanged: He favors steak and Coca-Cola. Every year he auctions off for a charity a private lunch. The first one in 2000 went for $20,000. The most recent one sold for $19 million. I don’t know who has good enough clothes to wear to a $19 million lunch.
Reorganization risk
To return to Burlington, as part of our reorganization plan, we proposed a way we could buy the company just for the price of funding their pension liability. First, we would sell off the only truly profitable unit of their business, a leading carpet manufacturer (which we later did sell for twenty-plus times earnings to Mohawk Industries for $352 million). That would raise enough capital to deleverage the company to the point where its only real liability was the pension fund. We then would exchange the defaulted publicly traded bonds for 100 percent of the equity. The judge agreed with us, and that plan was put into motion. Soon, we merged Burlington with other assets we had acquired: Cone Mills, a leading denim producer, and Safety Components, a major auto seat belt manufacturer. No one can accuse us of being terribly creative in naming the new company International Textile Group (ITG), following in the footsteps of International Steel Group and International Coal Group.
The next step in making International Textile Group profitable involved internationalizing it.
We set up a joint venture in Mexico, allowing us to become a major producer there. We also started two joint ventures in China and in Vietnam. Sadly, the move to Vietnam proved to be one of the worst mistakes of my business career. As is common in Communist countries, including China, we were forced to rely on a state-run company as our business partner. State-run companies are dens of corruption and inefficiencies, and our Vietnamese “partner” made up the lost revenues by charging us seven times as much as they should have to run the business in Vietnam. The management was simply horrible. This was all my own fault—I should never have let my business be that dependent on a state-run company. As a result, we lost every penny we put in there.
Excerpted from Risks and Returns: Creating Success in Business and Life by Wilbur Ross from Regnery Publishing, September 10, 2024.
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