Ross' New Game

BY SAM WILLIAMS

[This is a pre-edited draft of a business story that appeared under the headline "Ross' New Game" in the New York Post, April 11, 2004.]


Turnaround king Wilbur Ross would like to amend the record: As one of the nation's newest and largest textile industry investors, he no longer believes Chinese manufacturers are out to eat American manufacturer's lunch.

"In textiles, they've already eaten it," he says.

The only open issue, Ross adds, is whether the industry will lose its breakfast and dinner as well in the next 24 months. Having recently spent 10 days in China as a member of a U.S. trade delegation, Ross can only shake his head in awe.

"I'm amazed at the progress they've made," says Ross, sitting in the 19th floor corner office of his midtown equity firm, W.L. Ross & Co. "The highways are modern. The ports are deep water ports. Every mill we visited was running at 50 percent of peak capacity. Clearly they're getting ready for a big surge."

Guessing the arrival of that surge is proving to be the one safe bet in a three year string of long shot gambles. Come January 1, 2005, the U.S. and other members of the World Trade Organization must suspend their import quotas on foreign textiles.

That deal, one of many that paved the way for the WTO, is coming back to haunt the U.S. textile industry. Since the WTO's founding in 1995, U.S. fabric makers have shed more than 200,000 jobs. Most have relocated to China, a country with an exploding manufacturing sector and one which, thanks to its 2001 admission to the WTO, now has a chance to grab an even larger share of the worldwide textile market.

The giant sucking sound in U.S. textiles has a familiar ring for Ross, a so-called "vulture capital" investor who turned a $268 million bet on bankrupt Cleveland steelmaker LTV Corp. into $1.9 billion worth of shareholder equity in International Steel Group, a newly formed colossus built from other debt-laden properties.

Taking advantage of the Bush Administration's temporary tariff on steel imports in 2002, ISG secured enough advance orders to get the furnaces fired again. More important, Ross's "restructure or perish" sales pitch won the support of labor unions eager to keep plants open now that worldwide steel prices are surging.

"He's changed the game," says Mark Glyptis, president of the Independent Steel Workers, a union that represents workers a Weirton Steel Corp., a West Virginia company ISG is currently angling to buy out of bankruptcy. "He's changed the cost structure by incorporating a mini mill strategy that nobody in the integrated steel industry had been able to do."

Since ISG shares went public last December, Ross has shifted focus to the next rust-to-riches play: Last month, W.L. Ross & Co. fused Burlington Industries, a textile giant purchased out of bankruptcy, with Cone Mills, a Greensboro, N.C. denim maker, creating his latest colossus, International Textile Group.

Repeating steel's success will be difficult, Ross admits, but not impossible. Under WTO rules, the president can set new, temporary quotas if Chinese textiles come flooding in. In the meantime, Ross has been using his newfound red state clout to lobby the Bush Administration.

Grant Aldonas, undersecretary of International Trade Association and organizer of the recent textile delegation to China, says chances are good that a mutually beneficial deal between U.S. textile companies and Chinese apparel manufacturers can be worked out before the Jan. 1 deadline.

"The uncertainty going forward is something neither the Chinese want nor our industry wants," says Aldonas.

In the meantime, U.S. mills have other ways to curb the Chinese labor cost advantage: Increased Latin American trade, fabric brand differentiation, and, most importantly, technology. True to the shmata trade, he offers up his own tie for a quick rub.

"Feels like silk, doesn't it?" he says.

In fact, the tie's fabric is a waterproof material developed by Nano-Tex, a Greensboro company that uses nanotechnology-based techniques to coat fabrics. Prior to its bankruptcy, Burlington Industries acquired a major interest in Nano-Tex, something Ross hopes to exploit through licensing and product differentiation.

"American textile companies need to push the R&D, because countries like China don't do R&D," he says. "You need to be big, though. If we can do a few more acquisitions and get to $1.5 billion (in revenues). At that point, putting two percent back into R&D becomes a serious number."