This Is Some Way To Build Employee Loyalty

Rarely has a public offering of stock been the catalyst for a unionizing drive. But that's the case at Burlington Industries Equity Inc., where some workers are angry that the stock sale will zap their stake in the textile giant, held via an employee stock-ownership plan. Ironically, ESOPs are supposed to bind workers to their companies by giving them stock and linking their retirement nest eggs to corporate performance.

The Greensboro (N.C.) company will soon peddle 57 million new shares to the public in order to raise $855 million to pay down the huge debt Burlington assumed when it was taken private by a leveraged buyout in 1987. After the offering, the public will own 83% of Burlington. The employees' stake, diluted by the new issue, will be sliced from 49% to 3%. Meanwhile, due to Burlington's lackluster earnings, the value of their stock since the ESOP formation has slumped from $37.80 to $15 a share, the price Burlington hopes to fetch in its offering. "Employees expected a high share price and a say in their company," says Joseph R. Blasi, an ESOP expert at Rutgers University. "Now, they've got a much leaner retirement piggy bank, and once again outsiders call the shots." The company responds that any stock fluctuates.

BROKEN PROMISES? Burlington employees in a sense have been pawns in a complex set of maneuvers by the company's management and underwriters. Management arranged the $2.1 billion buyout to fend off a raider. To raise the necessary debt, it enlisted Morgan Stanley, Equitable Life, and Bankers Trust, which in return got stock in the company. Two years later, management loaded on $212 million in new debt to buy back the underwriters' shares and set up the ESOP, which replaced a lush profit-sharing plan as the main pension fund.

What rankles Burlington employees is that while their stake has been devalued, everyone else has prospered. Burlington Chairman and Chief Executive Frank S. Greenburg, who was allowed to buy many of his shares at under $15, stands to make at least $900,000 in paper profits on the new offering. Morgan, the lead underwriter, raked in $56 million from the ESOP deal, plus $116 million in fees. "Everything Frank Greenburg promised us never came through," grouses sewing-machine operator Janice E. Corneal. Greenburg and Morgan won't comment because the stock is in registration.

UNION VOTE. Using the ESOP issue as a rallying cry, disgruntled Burlington workers have enlisted the Amalgamated Clothing & Textile Workers Union to try to hold a union representation election at three of Burlington's 41 plants before the stock sale is over. The workers may also launch a lawsuit similar to one filed by Simmons Co. employees after stock in the Simmons ESOP plummeted 88%, to 50 per share.

The company argues that workers will be better off owning a smaller percentage in a healthier company. By paying down debt, proceeds from the new offering will halve the company's $252 million yearly interest tab. The sale will also directly benefit workers because part of the proceeds will retire early the debt incurred by the ESOP to buy its stock. Workers, the company notes, did not put any of their own money into the ESOP.

Workers would be a lot happier if the company's tomorrows looked bright. True, Burlington finally posted decent earnings ($17.9 million) in the quarter ended Dec. 28, but that's after years of losses and a severe downturn in the textile industry. While the company contends its fortunes will improve, big problems remain: tough competition from imports and the sluggish economy. After the stock offering, debt will still be a hefty 60% of capital. To Burlington workers, the buoyant promise of the ESOP has turned into a fable.

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