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Hero CEO Fights Textile Firm's Unraveling

Aaron Feuerstein is seeking $92 million to retain Malden Mills when it emerges from bankruptcy protection.

August 04, 2003|Justin Pope | Associated Press

LAWRENCE, Mass. — With their backs to the wall, few chief executives get much sympathy these days. Aaron Feuerstein gets checks in the mail from strangers.

The unsolicited contributions started eight years ago, after the CEO became a hero for refusing to lay off workers after a fire devastated his Malden Mills Industries Inc. textile plant. Now, Feuerstein is fighting to keep control of his company, and the pace of the donations has quickened.

"The checks come in every single day," the 77-year-old said. "People write two-page, three-page letters."

Feuerstein returns the money, but such small change wouldn't help much anyway at this point. The checks he really needs are from big lenders; in the wake of Malden Mills' 2001 bankruptcy filing, he has until Aug. 26 to raise $92 million or lose control of the company his grandfather founded almost a century ago.

Feuerstein says he will make it, but it is taking every ounce of his energy to persuade investors to back a company that has twice filed for bankruptcy protection and that promises to put people over profit and competes in an industry where virtually everyone else has fled overseas.

With or without Feuerstein in control, Malden Mills is expected to emerge from bankruptcy protection next month. Feuerstein's option to buy back the company will remain, but the price will rise, and so spending $92 million is his best shot.

If he fails, the plan calls for Feuerstein to remain in an advisory role that would pay him and his wife $425,000 annually. But few believe Feuerstein will be content playing second fiddle.

"Malden Mills is in Aaron's DNA," said David Orlofsky, brought in as chief financial officer by Kroll Zolfo Cooper Inc., the turnaround specialist firm running the company while it's in Chapter 11. "I don't think he could get it out of his blood. He's been doing this for 50 years."

Feuerstein won fame in 1995 when he kept his workers on the payroll after a fire destroyed the company's main plant. Now his quest is being keenly watched in Lawrence, a city of 72,000 about 25 miles north of Boston. Once the center of the American textile industry, Lawrence is now one of the poorest cities in Massachusetts with a 14.2% unemployment rate -- nearly three times the statewide rate.

"Lawrence simply can't afford to lose a company like Malden Mills," said Rep. Martin T. Meehan (D-Mass.).

Even if Feuerstein comes up short, the creditors couldn't immediately sell the company, and Feuerstein says they've treated him well. But he doesn't believe Malden Mills would stay long in Lawrence without him calling the shots.

"Their history in such situations does not augur well for the security of the 1,200 employees and the security of the community, which is part of the Malden Mills mission," Feuerstein said.

If Feuerstein can't raise the money, the company's future will be entirely in the hands of the new management, said Richard Jones, a spokesman for the lead creditor, GE Corporate Financial Services.

Since its bankruptcy filing, the company has increased profit -- excluding massive debts -- from $1.5 million to about $20 million. But that has come almost entirely from cost cutting. Revenue in the businesses it still operates has declined, from $179 million to $169 million.

Feuerstein says Malden Mills can compete. Its niche is the high-tech threads, such as Polartec, that it makes for the military and upscale customers such as Lands' End Inc. and Columbia Sportswear Co. A new fabric will not only keep users cool but also minimize body odor, thanks to anti-microbial strands of silver woven into the fabric.

The military is steering $27 million in business to Malden Mills this year.

Feuerstein tells prospective lenders he's a safe bet. Loan guarantees from the cities of Lawrence and nearby Methuen, plus state development funds, could produce $10 million. There's also $19 million of potentially usable company cash. And Feuerstein has met with officials from the Export-Import Bank about loan guarantees.

Andrew Bene, a managing director at Marshall & Stevens in New York hired to line up the money, said Feuerstein's fame and contagious passion have opened a lot of doors.

Still, Bene admits lenders are nervous about what might go wrong -- a warm winter could stifle demand for Malden Mills' products, or an overseas company might infringe its patents. There are concerns about Feuerstein's age.

Ultimately, Bene said, Feuerstein probably will pay high interest rates in a final deal expected to include several private equity firms and at least one well-known name, possibly Merrill Lynch.

Pam Poremba, a Malden Mills sales assistant whose mother worked at the company for 30 years, said she hopes Feuerstein will prevail. But she isn't averse to combining Feuerstein's vision with some fresh leadership.

"It might also be good to have some new people, to get some new blood and give us some new ideas," Poremba said.

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