Hi mokaman,
Thank you for your interesting question. Russell Corp. was bought out
and made private by Fruit of the Loom, which is owned by Berkshire
Hathaway, Warren Buffett's company (Buffett is the second richest man
in America). The announcement was made in April of this year and the
sale completed on August 1.
Russell had serious monetary problems and had a hard time keeping pace
with all the other textile companies outsourcing to China, so it seems
at first glance like there weren't too many good reasons on Berkshire
Hathaway's part for the buyout. There are many good reasons for it,
however, upon further examination.
Andy Kilpatrick, who has written a biography of Buffett, explains the
situation thusly:
"?Everybody would say the textile business is going to hell in a hand
basket. That?s why Buffett is interested. He?s got to know something
that will make the company different, and what makes it different is
that he?s coming in with triple-A credit. He can borrow money more
cheaply. Berkshire actually started as a textile company in ?65, the
only company that ever went belly-up on them. He already knows every
problem they can have. He bought Fruit of the Loom a few years ago and
managed to turn that company around after they had declared
bankruptcy.?"
http://www.businessalabama.net/default.asp?id=1353
Here are some reasons for the sale:
1. Berkshire Hathaway's apparel business is strengthened.
Russell is the nation's number one maker of sweatpants and
sweatshirts. When this is combined with Fruit of the Loom, a huge
maker of undergarments for men, boys and women, BH is well-placed to
compete in the apparel industry. Berkshire Hathway will own two of the
four largest blank T-shirt makers in the imprinted athletic wear
market. (This also means that the two companies were competitors with
each other, another possible reason for the sale.)
Russell, while sporting goods-based, is also more upmarket than Fruit
of the Loom-- it is sold in more department, specialty and sporting
goods stores, while FOTL is mostly sold in discount stores such as
Walmart and Target. (Russell is also sold in Walmart, too.)
--------------------------------------------
2. Berkshire Hathaway's sporting goods business is strengthened.
Rusell itself has acquired many sporting goods businesses in the past
six years which add to its strength in sporting goods-- it produces
Tshirts and fleece products, but acquired companies such as Spalding
produce basketballs and Brooks produces athletic shoes. This more
all-around presence must have appealed to BH in its quest for a
sporting goods company.
--------------------------------------------
3.Increased bargaining power.
With both Fruit of the Loom and Russell, Berkshire Hathaway will have
increased bargaining power with huge retailers such as Target and
Walmart, which could result in large cost savings.
--------------------------------------------
4. The company has a good brand name.
Buffett goes for brand names. Andy Kilpatrick said: " 'He loves brand
names. He's an expert - Coca-Cola, American Express, the Washington
Post, Gillette. He thinks the brand name is worth a lot. A good brand
name carries clout.'"
http://www.al.com/business/birminghamnews/junderwood.ssf?/base/business/114638875659910.xml&coll=2
--------------------------------------------
5. Buffett's credit.
With billions of dollars at his disposal, Warren Buffett has a good
credit line. With Berkshire's credit, Russell can reduce borrowing
expenses and turn greater profits than it has been.
--------------------------------------------
6. It gets rid of one of Fruit of the Loom's biggest competitors.
Russell's biggest competitor was Fruit of the Loom. Together, the two
are strengthened and can focus on other competitors (such as Gildan,
described below).
--------------------------------------------
7. Competition from Gildan Activewear.
You were correct in theorizing that Gildan might have had something to
do with this takeover. Fruit of the Loom's main competitor is Gildan,
and in recent years FOTL has lost market share to Gildan. Gildan had a
one-year sales growth in 2005 of 22 percent, while Fruit of the Loom,
meanwhile, is just now emerging from bankruptcy and back on solid
financial footing. In that same year, Gildan's net income went up 44
percent, its number of employees went up 37 percent, and all of this
was probably at the expense of some Fruit of the Loom sales. Overall,
Gildan's sales have doubled in the past five years. Their stock price
went up 150 percent in 2005.
Last year, Gildan's share of the blank T-shirt industry increased from
30 percent to 36 percent. Russell has also lost ground to Gildan,
which at the same time increased its share of sweatshirt sales from 16
percent to 25 percent. Gildan has chosen to match itself head-to-head
with FOTL and some people have even nicknamed the company the "Fruit
killer." Gildan has sold wholesale shirts to universities and
screenprinters to date, but recently decided to compete with FOTL on
an even more direct level by selling underwear and also by targeting
mass market retailers such as Walmart with its products. They also
price themselves directly according to FOTL's products. Glenn
Charmandy, the president and CEO of Gildan, said, ""If Fruit (of the
Loom) is selling something at $6, we'll be at $5 or $5.50 with a
better product."
http://www.canada.com/vancouversun/news/business/story.html?id=5323a65d-5679-4bdd-8659-8217a1d4869b&k=85148
Gildan have been able to compete because they are the new kids on the
block-- they invested in state-of-the-art technology from the
beginning and didn't have to worry about updating old equipment. Fruit
of the Loom also sued Gildan, accusing it of misappropriating FOTL
confidential documents in order to estimate production costs in Latin
America.
However, Gildan isn't the only competitor who has taken market share
from Fruit of the Loom-- almost every other competitor, such as Hanes,
has also taken sales away. (Coincidentally, Hanes is probably going to
be up for sale soon and some predict that Berkshire Hathaway will also
buy it.)
--------------------------------------------
8. The company was down, but not out.
"'Buffett likes to buy good brands that are beaten up,' [analyst
Scott] Krasik said."
http://www.statesman.com/business/content/shared/money/stories/RUSSELL_0418_COX.html
Russell's share price had gone down 20 percent from last year. Six
hundred jobs were cut in Mexico and 1,250 jobs were laid off at its
home manufacturing base in Alexander City, Alabama. It was struggling
to keep its manufacturing in Alabama after already outsourcing all its
knitting and sewing work to China in order to better compete with
Nike. Last year, Walmart dropped Russell as the exclusive provider of
its boys' sweatshirts and sweatpants. This drop in business
represented 2-3 percent of Russell's total sales. The company paid a
high severance check to a departing CEO. Issues in Honduras resulted
in quality issues. Hurricanes created shipping problems.
The company had $400 million in debt that Berkshire assumed at the
time of acquisition.
Russell has a known brand name and established product but was in
trouble-- Buffett saw an opportunity and jumped. By slashing jobs and
selective cost cutting, the company can be put on the right track
again just as Fruit of the Loom was after Buffett acquired it a few
years ago. Buffett can do this better than any other businessman, it
is how he has made most of his money over the years, and he has made
more than almost anyone.
Sources:
http://embmag.com/embroiderymonogram/headlines/briefs_display.jsp?vnu_content_id=1002986194&imw=Y
http://retail.seekingalpha.com/article/9231
http://goliath.ecnext.com/coms2/product-compint-0000307523-page.html
http://hoovers.com/fruit-of-the-loom/--ID__11960--/free-co-factsheet.xhtml
http://hoovers.com/gildan-activewear/--ID__57292--/free-co-factsheet.xhtml
http://www.apparelstrategist.com/index.php?option=com_content&task=view&id=40&Itemid=41
http://www.apparelstrategist.com/index.php?option=com_content&task=view&id=40&Itemid=41&limit=1&limitstart=1
http://www.apparelstrategist.com/index.php?option=com_content&task=view&id=40&Itemid=41&limit=1&limitstart=2
http://www.wipo.int/sme/en/activities/meetings/vietnam_03/wipo_ip_hcm_03_1.pdf#search=%22fruit%20of%20the%20loom%20gildan%20competition%22
http://www.canada.com/vancouversun/news/business/story.html?id=5323a65d-5679-4bdd-8659-8217a1d4869b&k=85148
Search terms:
fruit of the loom russell corp
fruit of the loom gildan competition
fruit of the loom gildan competitor
Thank you for your question! If you need any additional help or
clarificatons, let me know and I'll be happy to help you.
Cheers,
--keystroke-ga |
