WestPoint Stevens moves raise questions

Don Hogsett, April 16, 2001

ATLANTA — Sending a shock wave rolling down Wall Street, mowing down the value of WestPoint Stevens' stocks and bonds, David Meek, the embattled company's highly respected, no-nonsense cfo, abruptly jumped ship — or was pushed — after less than two years on the job.

It should have been a good day for a major mill that had just begun to climb back on track after 18 months of turmoil and uncertainty. In a move that should have bolstered confidence and support, industry veteran Bob Dale signed on as new head of sales, providing leadership, stability and credibility to a sales and marketing team in turmoil for the past 15 months.

Instead, eyebrows were raised, alarm bells set off and the stock shredded by the entirely unexpected and simultaneous announcement that Meek will leave the company later this month, only weeks after reworking the heavily leveraged company's debt covenants with its lenders. Only the week before, at market week presentations to Wall Street analysts and bond traders, Meek seemed confident and in control as he painted a picture of the company's steadily improving operations and long-term financial prospects.

"That's what makes this so puzzling," said Kay Norwood, analyst at Wachovia Securities, Charlotte, NC. "I don't know what to make of this; I'm stunned. The reason the Street reaction is so bad is that people felt so much confidence in David Meek, and now they don't know why he's out or what it means. There are all kinds of stories out there. But the bottom line is that if David Meek said everything was going to be okay, you believed him. He had a whole lot of credibility, and now that's gone. That leaves a big hole at the company."

And Norwood wasn't alone in her shock and dismay. Clearly nonplussed and concerned, Wall Street stock traders pushed the value of WestPoint stock down by 17.4 percent in unusually heavy volume. Hammered by the news of Meek's impending exit, the stock dropped by $1.65, to $7.81 a share. WestPoint bonds were punished as well, hammered down by almost 30 percent, dropping to $60 from $83, a plunge of 27.7 percent.

"Nobody knows what's going on there," said Jeff Stewart, high-yield bond analyst at First Union, Charlotte, NC. "There's no information at all. There was no indication at the analyst meeting last week there would be any change. You have to wonder what the heck happened. And then they try to bury the news at the bottom of this other press release.

"This is a very critical period for the company, and they've got a great big management void. They just renegotiated the debt covenants with the banks, and then three weeks later the negotiator gets fired. What kind of confidence does that inspire? Nobody knows what this means, especially when everybody's wondering what kind of first quarter they're going to report."

That's an especially big concern since during a punishing fourth quarter WestPoint sales plummeted by 13.8 percent, and the company posted a loss of $8.9 million, weighed down by $23 million in restructuring costs.

Stewart said he expected another loss and another shortfall in sales for the first quarter of 2001. "I think sales could be down as much as 7 percent," he said. "And they might have gone down even further if it weren't for the Chatham blanket acquisition. And I think there's an EPS [earnings per share] loss for the quarter."

The company is scheduled to report first-quarter sales and earnings April 26, with a conference call set for 11:00 a.m.

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