West Point-Pepperell, Inc.
Address:
400 West Tenth Street
West Point, Georgia, 31833
U.S.A.
Telephone: (706) 645-4000
Fax: 706-645-4068
Statistics:
Public Company
Incorporated: 1880 as Pepperell Manufacturing Company
Employees: 21,000
Sales: $1.5 billion
Stock Exchanges: New York
SICs: 2211 Broadwoven Fabric Mills--Cotton; 2221 Broadwoven Fabric Mills--Manmade; 2299 Textile Goods Nec
Company History:
From humble roots in the South's postwar reconstruction, over the last century West Point-Pepperell, Inc. (WPP) has experienced tremendous growth through the acquisition of other companies and investment in new mills and production development. After taking over many companies, West Point-Pepperell experienced some extreme turbulence when it was taken over itself in a deal involving intricate, and very shaky, manipulations within the world of high finance. Despite the failure of the takeover, the company remains a preeminent manufacturer of sheets, towels, and apparel, encompassing such famous brand names as Martex, Ralph Lauren, and Lady Pepperell. It is the top-selling U.S. producer of domestic bed linens and the number two producer of bath towels.
The roots of West Point-Pepperell go back to Appomattox and the start of the New South. In the wake of the Civil War's devastation, the South looked to industry as the means to rebuild. While southern-grown cotton comprised more than 60 percent of all U.S. exports in 1860, very little of it was being manufactured locally. Most was manufactured in Great Britain or the East. Given the depleted economy of the South and the amount of people eager to work, the road to the New South seemed to be via manufacturing.
In Alabama, in the valley of the Chattahoochee River near West Point, two groups of merchants and planters surveyed their ruined businesses and plantations around 1865 and found they had just enough capital to build two cotton mills. Although poverty engulfed the area, by using the river to generate power and by digging clay from the native soil for the bricks to build the mills, the groups built two plants at Langdale and River View. The laying of cornerstones of the Alabama & Georgia Manufacturing Company in River View and the Chattahoochee Manufacturing Company in Langdale in 1866 was a cause for great celebration.
The two new companies struggled in their early years with machinery, labor, and capital problems. Then came the economic panic of 1873. Both mills closed until two brothers, Lafayette Lanier and Ward Crockett, both veterans of the confederate army, acquired stock in them and converted production to the fabric used in canvas wagon tops and tents, which was then in great demand. Machinery was modernized. In 1880, the mills were reorganized and renamed the West Point Manufacturing Company. There were eight stockholders and 75 employees.
The company prospered until a disastrous fire struck in 1886, destroying the mill. Fortunately, the company had an alliance with a Boston selling agent who helped raise the capital to rebuild the lost mill. In 1890, West Point was larger than ever, having acquired a new mill and in the process of constructing another. As the railroads came and the West was developed, the demand for textiles skyrocketed. West Point continued to expand by adding mill after mill through the end of the 19th century.
In 1906, Lafayette Lanier's son George stepped in to help his ailing father steer the company. Under George Lanier, who helped to launch the company's second expansion program, another duck mill was built and the company made the transition from water power to electricity. Lafayette Lanier died in 1910 and in time, George Lanier became president, serving the company in this capacity from 1925 until 1948.
George Lanier had brought with him experience in the manufacturing of towels, and so, in 1916, the Fairfax mill was established for this purpose. While World War I was underway the company met demands for army fabrics, but after the war it converted back to the manufacture of towels. In 1928, West Point purchased the business of a Philadelphia manufacturer of terry cloth towels, which brought with it the valuable Martex trademark brand name.
The company entered its third expansion period during the Depression of the 1930s, and continued expanding into the 1940s by acquiring and building additional mills. In 1933, West Point purchased the Dixie Cotton Mills of LaGrange, Georgia, a historic mill that had begun operations in 1897. In 1945 West Point purchased the Boston agency that had helped refinance it after the fire in its mills. The following year, Cabin Crafts Incorporated, a subsidiary of West Point, was established in Georgia and became a pioneer in the tufting industry, making bedspreads, drapes, and rugs. Columbus Manufacturing Company was purchased in 1947. By this time, West Point had started its own research division as well.
Even before West Point was born, its future partner had begun a parallel path. In 1844, a Bostonian engineer took a defunct cotton mill in Biddeford, Maine, and, borrowing the name of a legendary Colonial soldier and merchant, obtained a charter for the Pepperell Manufacturing Company. The company was formally organized in 1850, with another mill along the same river site already under construction. The first bed sheet stamped with the Pepperell name was sold in 1851.
Pepperell had three mills humming by 1866; making shirting, sheets, and jeans for sale domestically and overseas. The company merged with the Laconia Company in 1899, just in time for the slump in New England's textile industry. In 1925, Pepperell began construction on its first Southern mill--the Opelika Mill in Alabama. The Massachusetts Cotton Mills and the Lindale plant of Georgia were acquired in 1926. The same year, one of Pepperell's best known brand names was introduced, a line of sheets called Lady Pepperell. Another mill was built in Opelika and a sales force was organized. In 1930 Pepperell purchased Granite Mills, a producer of fine-combed cotton goods. By 1946, a new, wholly modern finishing plant had been built and a new sheet factory was added shortly after that.
The 1950s were a time of growth and change for both concerns. West Point built new general offices and began manufacturing synthetic fabric in its Shawmut Mill Division. Still headed by the Lanier family, the company observed its 75th anniversary in 1955, began manufacturing carpeting the year after that and, in 1958, reformed its subsidiaries into three operating divisions: Dixie Mill Division, Columbus Mill Division, and Anderson Division. During this same time, Pepperell opened a new sewing plant in Alabama. West Point was still expanding in the early 1960s, building a new mill in Georgia, and acquiring Forrest Mills, Inc. and Velvetone Mills, Inc. in 1962.
In March of 1965, West Point Manufacturing Company and Pepperell Manufacturing Company merged to form West Point-Pepperell, Inc. Within two years, each of its name brands--Carlin, Martex, Lady Pepperell--had its own full line of products for the bed and bath, and other new products and brands were being introduced. In 1968, WPP launched a $16 million program to expand and modernize. Alamac Knitting Mills, Inc. and American Rug and Carpet Company were purchased by 1969.
Alamac became a division of the company and underwent a major expansion. In 1971, J. L. Lanier, Sr., retired as chair and chief executive officer. He was succeeded by John P. Howland. Joseph Lanier, Sr., had joined the company in 1930 when his father, George Lanier, brought him on as an assistant. He eventually succeeded his father as president and chair of the board. Joseph Lanier, Jr., became president of West Point-Pepperell in 1974, serving until turmoil beset the company in the late 1980s.
Throughout the 1970s, WPP continued its climb to becoming one of the world's largest and most versatile producers of textile goods. A huge yarn dye plant was launched in North Carolina; Georgia's Cusseta Plant was acquired and added to WPP's Industrial Fabrics Division; a building, land, and machinery were purchased in Georgia for a yarn manufacturing plant; Mission Valley Mills, Inc. of Texas was acquired in 1972 and a new mill was to be built elsewhere in Texas.
Another thrust of this period was to expand WPP's carpet production. Georgian Carpets was established in 1976. Two years later, WPP purchased nearly all of Ludlow Corporation's carpet manufacturing facilities and related assets. Similarly, the knitting operations--machinery and assets--of the Duplex International Division of Reeves Bros., Inc. was purchased in 1978. The $1 billion mark was topped for the first time in 1979. This same year, J. L. Lanier, Jr., having served as president for five years, was elected chair.
The company celebrated record sales and earnings highs in 1980. That year, it had purchased Virginia Crafts, Inc. of Virginia and Tifton Carpet Spinning Operation of Georgia. Economic uncertainties and high interest rates caused a slight drop in sales that year; sales continued to dip slightly in 1982, but net income was up that year. For the previous three years, WPP had invested about $150 million in capital projects, especially spinning and weaving mills, to increase output and improve quality.
Advanced Fabrics, Inc. of Georgia was purchased in 1983. An international division of WPP was formed this same year and a joint venture was put underway with a Belgian firm to market bed and bath products in Europe. With the economy improving, WPP's sales were up slightly. More than half of sales that year were in household fabrics; about 30 percent were apparel. WPP purchased the assets of Bond Cote Systems, a maker of coated industrial fabrics based in Virginia.
It was a few years before the economic upturn was reflected in sales of home items like furniture, carpets, drapes, sheets, and bath towels. WPP's sales remained better than average during the recession, in large part due to its high-fashion home furnishings niche, but earnings stumbled 71 percent in the first half of 1985. Market analysts speculated that this reflected the investment costs of the company's conversion to specialized industrial fabrics.
The company's international division bloomed in 1986 with the purchase of London-based Arthur Sanderson & Son Limited, marketers of decorative furnishing fabrics, wall coverings, and specialty carpets, with operations in the United Kingdom, Canada, and the United States.
In 1986, Cluett, Peabody & Co., Inc. was acquired by WPP as a wholly owned subsidiary. Cluett, like West Point and Pepperell, had its origins in the mid-19th century, in a small business in New York that made detachable collars for men's shirts. In 1889, Cluett had acquired the Arrow brand name for its shirts. Between 1900 and 1931, Arrow shirts, promoted heavily through the "Arrow Collar Man" ad campaign, became a rage across the nation. By 1941, sales volume for Cluett products topped the $30 million mark and Cluett began to look to the South for expansion. In the late 1950s Cluett acquired Baltimore-based J. Schoeneman, Inc., a manufacturer of top-selling, high-quality men's and women's clothing. Throughout the following decades, it expanded through acquisitions of textile mills, apparel manufacturers, and distributors, such as the Halston line of men's clothing. When West Point-Pepperell acquired Cluett in 1986, its previous year's sales had been $2.1 billion.
In 1988, WPP made another cornerstone acquisition: J. P. Stevens & Company, a rival in several areas of WPPs business. The purchase included 15 manufacturing plants and such famous designer names as Ralph Lauren and Laura Ashley sheets and towels. This doubled WPP's domestic share of those markets--climbing to about 30 percent of towels and 36 percent of sheets. The purchase also catapulted West Point-Pepperell to the number one spot in the $1.2 billion bed-linen market, and number two, behind Fieldcrest-Cannon, in the $1.2 billion towel market. As growth rate in home furnishings is more or less static, increasing market share is the surest way to increase earnings. Acquiring J. P. Stevens was a coup, but a costly one. The bill of $1.2 billion and nearly doubled WPP's debt ratio.
While the company immediately put unwanted portions of J.P. Stevens on the block--such as automotive and carpeting businesses--the leverage incurred in the transaction made WPP more alluring for raiders. The company represented a number of strong brand names in the apparel field, such as Arrow shirts and Gold Toe hosiery, in addition to its leadership in sheets and towels. WPP's labor force was mostly nonunion and a recent $300 million capital-spending program had brought its facilities up to state-of-the-art efficiency. The debt was just one more ingredient to attract a takeover.
And in fact, within eight months of the purchase, William Farley, then chair of Farley, Inc., a holding company whose crown jewel was Fruit of the Loom, Inc., came into the picture. A former investment banker, Farley was a noted takeover artist who had had great success throughout the 1970s with leveraged buyouts, hooking up with investment banker Drexel Burnham Lambert in 1984. He acquired Fruit of the Loom as part of his 1985 purchase of conglomerate Northwest Industries, Inc.--a billion-dollar acquisition he pulled off with the help of emerging junk-bond specialist, Drexel. Farley then groomed the underwear company into a billion-dollar business.
In 1989, Farley launched a five-month, hostile battle to take over WPP and won. The price tag was $3 billion--much more than initially expected--and the deal complicated. Through the ad hoc entity, West Point Acquisition Corporation, Farley purchased 95 percent of WPP's stock at 20 times the company's 1988 earnings, planning to sell $1.6 billion in junk bonds to repay debt and buy the remaining public shares. But he was unable to raise the money when both the junk bond market and Drexel Burnham, Farley's investment banker, collapsed, and his West Point Acquisition Corporation found itself owing $800 million to banks and $700 million to bondholders.
Farley incurred $2.4 billion of acquisition debt in the purchase and had hoped to negotiate interim financing with a junk-bond offering handled by Drexel. He also planned to sell WPP assets, Cluett Peabody in particular, which he hoped would fetch up to $800 million. While Fruit of the Loom did a booming business, its cash was off limits to holding company Farley, Inc., because of debt-covenant restrictions. WPP was already a very lean company, so cost-cutting wouldn't help.
Conditions for Farley were not favorable. WPP had fought the takeover vigorously. Employees burned Fruit of the Loom underwear in demonstrations. Company attorneys sought the aid of state legislators for anti-takeover legislation. The takeover had been so acrimonious, there was trouble brewing immediately afterward with rank-and-file workers, as well as executives. WPP lost many key players, including the fourth generation of the founding Laniers, and the former head of Stevens' sheet division, who left with the highly profitable Laura Ashley license. Then Drexel lost its magician, Michael R. Milken, and the junk-bond market began to shudder. At the same time, many of WPP's primary customers were also suffering: Marshall Field and Saks Fifth Avenue were reportedly up for sale; B. Altman was bankrupt and Bloomingdale's was teetering on the brink of bankruptcy. Just at the point in the takeover where everything had to go right, nearly everything went wrong.
Tension was high in early 1990, as Farley continued to struggle to arrange financing to complete the acquisition of WPP. Though it had been announced that Biderman S.A., a French company, would buy Cluett, that deal was dragging and the price kept dropping. Farley had arranged a $1.03 billion bridge loan at inflated interest rates in order to pay interest on debts accrued. Then Drexel, which had been Farley's compass in the deal, filed for Chapter 11 bankruptcy law protection against its creditors. Notes on the bridge loan were due in March of 1990.
At the eleventh hour, Farley secured an extension on his bridge loan. But he was short the $83 million needed to buy the last 5 percent of company shares. In March of 1990, Biderman finally signed on the Cluett sale, but the price was a shockingly low $350 million and without 100 percent ownership, Farley couldn't use proceeds from the Cluett sale to help repay his loans, anyway. Then West Point Acquisition defaulted on a $796 million bank loan and missed bond-holder interest payments. The acquisition vehicle went into default in March of 1990; in August of 1991, Farley agreed to cede--through the vehicle--his hold on 95 percent of WPP.
At the same time, the recession was hurting sales of towels, sheets, and other cornerstone WPP products. After Farley ceded control of the company in a debt-for-equity swap, West Point Acquisition filed for a prepackaged Chapter 11 bankruptcy, meaning it had already won most of its creditors' approval for debt-restructuring, a process much faster than most bankruptcy proceedings. Farley announced he would continue as chair and chief executive officer of WPP. He blamed the junk-bond market collapse, the Gulf War, the recession, and resultant credit crunch for the failure of his acquisition.
In the fall of 1992, West Point Acquisition had been restructured and renamed Valley Fashions Corporation. It had departed from Chapter 11 protection and was moving into the hands of private investors. Holcombe T. Green, Jr., headed up the company. A group of WPP shareholders sued Farley for his failure to complete the takeover, and sought to block the debt-for-equity swap. WPP reported a 5.9 percent drop in sales and a plunge in earnings in early 1993, in part due to reorganization charges and overall loss from discontinued operations.
A new president and chief executive officer was announced in February 1993. Joseph L. Jennings, Jr., claimed that all the company needed was a better sense of direction. In the New York Times, he said of WPP, "They are still the largest bed and bath company in the world. My job is mainly to bring more stability." Jennings is related to the Lanier family, founders of West Point.
Principal Subsidiaries: J. P. Stevens & Co., Inc.; West Point-Pepperell Stores, Inc.
Further Reading:
Benoit, Ellen, "West Point-Pepperell: the Victor Spoiled?" Financial World, May 31, 1988, p. 8, 11.
Berg, Eric, "Farley Sale of Cluett to French," New York Times, March 17, 1990, p. 33.
Berss, Marcia, "Squeezed," Forbes, January 8, 1990, p. 48.
Christie, Rick, "West Point-Pepperell Winds Up in Limbo," Wall Street Journal, February 21, 1990.
"Farley's Acquisition of Pepperell Runs into Financial Snags," Wall Street Journal, January 10, 1990, p. A12.
"Farley Unit Misses Loan Payment," New York Times, April 3, 1990, p. D4.
Foust, Dean, "Stevens Cries Double-Cross," Business Week, May 2, 1988, p. 35-36.
Greising, David, "Bill Farley Is on Pins and Needles," Business Week, September 18, 1989, p. 58-59.
Hayes, Arthur, "Law," Wall Street Journal, April 23, 1990, p. B5.
Hopper, Lucien, "West Point-Pepperell," Financial World, September 5-18, 1984, p. 6.
Johnson, Robert, "Farley Lags in His Plans to Pay Debt as Cluett Is Sold for a Low-End Price," Wall Street Journal, March 19, 1990, p. A4.
Johnson, Robert, "Farley May be Close to Sale of Cluett Unit," Wall Street Journal, February 22, 1990, p. C18.
Johnson, Robert, "Farley May Have to Fight Bondholders Over Control of West Point-Pepperell," Wall Street Journal, May 30, 1990, p. A5.
Johnson, Robert, "Farley Secures Loan Extension," Wall Street Journal, March 15, 1990, p. C15.
Johnson, Robert, "Farley to Surrender Majority Ownership of West Point-Pepperell, Sources Say," Wall Street Journal, April 11, 1990, p.A3.
Johnson, Robert, "Feeling Pinch William Farley May Accept Bid," Wall Street Journal, May 31, 1990, p. A4.
Johnson, Robert, "William Farley's Quest for Status Threatens to Topple His Empire," Wall Street Journal, April 30, 1990, pp. A1, A16.
Laing, Jonathan, "Love that Leverage!," Barron's, May 1, 1989, p. 6-33.
Lowenstein, Roger, "Bill Farley Is Bailed Out by Rebounds in His Stock," Wall Street Journal, April 16, 1991, pp. C1-C2.
Lowenstein, Roger, "West Point-Pepperell's Shares Look Cheap," Wall Street Journal, February 23, 1990, p. C2.
Madden, Stephen, "Georgia on His Mind," Fortune, January 30, 1989, p. 191.
Miller, James, "Pepperell Group Is Suing Farley over Takeover," Wall Street Journal, March 19, 1992, p. A4.
Miller, James, "William Farley, Ceding Control, Severs His Last Ties to West Point-Pepperell," Wall Street Journal, October 26, 1992, p. B6.
Norris, Floyd, "Behind Delay in Farley Deal for West Point-Pepperell," New York Times, January 9, 1990, p. D1.
"Pepperell Reports a Deficit," New York Times, January 1993, p. 39.
"Pepperell's 3rd-Period Loss Amounts to $179.6 Million," Wall Street Journal, January 4, 1993, p. B2.
Rice, Faye, "Looking Homeward for Stocks," Fortune, June 10, 1985, pp. 217, 220.
Rublin, Lauren, "The Trader," Barron's, February 26, 1990, p. 65.
Schellhardt, Timothy, "Farley to Cede Pepperell Unit's Majority Stake," Wall Street Journal, August 6, 1991, p. A2.
Schwartz, Jerry, "West Point-Pepperell Names New President," New York Times, February 2, 1993, p. D5.
Taub, Stephen, "Market Watch," Financial World, March 17, 1992, p. 14.
"$300 Million Worth of Humility," Business Week, August 19, 1991, p. 36.
"West Point-Pepperell Taps Jennings for Posts," Wall Street Journal, February 5, 1993, p. B5.
Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.
