Springs and Coteminas Merge Into Giant

Don Hogsett, October 17, 2005

Sao Paolo, Brazil — Springs Global — the result of Springs Industries' merger with Coteminas of Brazil, its supplier for the past four years and a company just a fourth its size — will result in what the two companies say will be the world's largest home textiles producer, with sales in the range of $2.4 billion.

Not included in the deal are Springs' profitable window fashions business, which generates in the range of $300 million in annual sales, its area rug business or Coteminas' denim and apparel fabrics business.

Under the terms of the deal, each of the companies will hold a 50 percent stake in the new entity. And the leaders of the two companies, Crandall Bowles, CEO of Springs, and Josue Christiano Gomes de Silva, will be co-CEOs of Springs Global.

While Coteminas is closely linked to Brazil — founder Jose Alencar da Silva has been vice president of the nation since 2003 — it roots have also sprouted in the United States. His son and the company's current CEO is a graduate of Vanderbilt University, and his daughter, Maria de Graca Campos Gomes da Silva, Coteminas' marketing director, is a graduate of New York's Fashion Institute of Technology.

Financial terms of the deal were not disclosed, nor were any specifics about how the new company would be operated on a day-to-day basis, who its line managers will be or how many of Springs' U.S. plants might be at risk in the aftermath of the deal. Already this year, four Springs plants have been shuttered as cost-savings moves.

Suggesting that Coteminas will be calling most of the shots, if not assuming control, the headquarters of the new company will be located in Brazil, shifting the corporate axis thousands of miles south from Fort Mill, S.C., where Springs was founded by a former Confederate soldier, Samuel Elliott White, in 1887.

The deal also creates a new paradigm for the American home fashions business. It may also create a template for the kind of deals done in the future. In the past, American companies gobbled up smaller, sometimes sicker, rivals to gain market share and bulk up the capacity needed to supply their increasingly large and rapidly growing retail customers.

But now, a small, nimble, and hard-charging foreign company seems to be taking the reins of an American textiles colossus it once served as a supplier — not for its manufacturing but its distribution, knowledge of the U.S. market, sales and marketing savvy and product design and development expertise.

Indeed, Springs' plants may be the last thing that Coteminas needs or wants, when offshore companies are lower-cost, often more flexible, rapidly responding producers.

Illustrating the widening gap between offshore suppliers like Coteminas and U.S. suppliers like Springs are a set of financials that suggest why American companies have to look beyond this nation's borders.

During 2004, Coteminas generated the kind of results that American textiles companies haven't seen in decades. So far in 2005, Springs, now a privately held company which no longer reports its financial results, is believed to have lost money on declining sales.

In 2004, Coteminas' return on sales — profits measured as a percentage of sales — was 13.4 percent. In stark contrast, during 2000, its last year as a public company, Springs recorded a return on sales of 1.8 percent.

In addition, Coteminas recorded an average gross margin of 31.7 percent. In 2000, its last year as a public company, Springs was half of that, 16.2 percent.

Last year, Coteminas' operating costs totaled 9.7 percent of sales. Springs, while improving in 2000, logged operating costs at 10.9 percent of sales, even though improving remarkably from 13 percent during 1999.

Coteminas (Companhia de Tecidos Norte de Minas)

12 months 12/31/04 (x000) 2004 2003 % change
Converted from Brazilian reais at the rate of exchange on Oct. 14, 2005.
Sales $583,648 $499,101 16.9
Oper. income 128,220 118,832 7.9
Net income 78,320 74,565 5.0
Average gross margin 31.7% 34.3%
SG&A expenses 9.7% 10.4%

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