Pillowtex done in by aggressive growth

Don Hogsett, November 20, 2000

DALLAS -The very forces that built Pillowtex into a $1.6 billion textiles giant are also pushing it over the edge: aggressive expansion through acquisition, often over-paying for the companies that it bought, and piling high a mountain of debt.

And it started long before the landmark Fieldcrest Cannon acquisition that put it on the map as the nation's second-largest supplier of home textiles products. Indeed, starting in 1970 with the buyout of a small pillow producer, Perl Pillow, Pillowtex has strung together a necklace of 16 companies, large and small, that adorned, but finally choked, the textiles titan.

The building began in earnest-and started getting costly-in 1993, when Pillowtex decided it wanted to buy its way into the blanket business to round out its assortment of basic bedding products. Starting with two small deals, hard-charging Chuck Hansen, the recently ousted ceo, raised industry eyebrows with the amounts he paid for the acquisition of Tennessee Woolen Mills and Manetta Mills.

Two years later, he stunned observers with the $171 million price tag he swallowed to acquire a third blanket producer, Beacon Mfg. And he followed that up with another pricey buyout, the blanket business of Fieldcrest Cannon. All told, Hansen spent more than $220 million, paying $1 in borrowed money for every dollar of sales, to buy his way into a blanket and throw business that generated $220 million in sales at its zenith in 1997.

Since then, through a long string of management blunders, the Pillowtex blanket business that cost so much to put together has now shrunk to half its former size, less than $110 million.

And that was just the appetizer in the buyout buffet of the '90s. The main course was the mammoth acquisition in 1997 of Fieldcrest Cannon Inc., a company twice the size of Pillowtex, in a cash and stock transaction valued at more than $700 million, including the assumption of Fieldcrest debt.

The icing on this very costly cake was the most recent acquisition, of terry producer Leshner Mills, for about $80 million. Pillowtex wound up paying roughly $8 million in interest costs each year on the Leshner buyout, about twice as much as the $4 million in cash that the business is bringing in. Put another way, it's paying $1 for every fifty cents of cash flow.

Add up all those recent acquisitions, with their high price tags and double-digit interest rates, and Pillowtex paid $27 million in interest costs during the recent third quarter, more than six times its cash flow, flipping the pages quickly into Chapter 11.

It wasn't unexpected, but it still hurts: top Pillowtex creditors

Banks and Bondholders take the biggest hit...

U.S. Bank Trust

$310.0 mil.

State Street Bank and Trust


Credit Suisse First Boston


But Suppliers share the pain

Santee Print Works


Parkdale Mills


Maintenance & Industrial Services


Pac-Fung Feather Co. Ltd., Hong Kong


Vulcan Performance Chemicals


E.I. DuPont Co.


Integrated Business Solutions (div. of Lockheed Martin)


Xymid LLC


Allenberg Cotton Co.


Gloria Industrial Inc.


J & J Southeast


CIBA Specialty Chemicals


Manifatura Di Legnano


Sajid Textile Ind., Karachi, Pakistan


Topiol Freres, France


Source: U.S. Bankruptcy Court, District of Delaware

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