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Styles Clash in Warnaco Takeover Fight : Group Led by Galef Seeks to Invigorate Earnings as Well as Products

Times Staff Writer

Andrew Galef was wearing a light-blue checked shirt produced by a company he very much wants to buy.

The shirt was a Hathaway made by Warnaco, a fact he proudly noted as he relaxed in a leather chair during a recent interview in his Bel-Air Estates home. Not only does he wear Hathaway shirts, he added, but his wife, Billie Ruth, enjoys wearing Olga lingerie, made by another Warnaco division based in Van Nuys.

But even though Galef, a longtime business consultant, likes some of Warnaco’s fashions, he doesn’t think much of its management style. He criticizes the Bridgeport, Conn., company for its sluggish earnings and says it needs to invigorate some lines, particularly its White Stag women’s sportswear.

Galef says that is the reason his Encino-based investment group, W Acquisition, began an effort a month ago to take over Warnaco. That effort was stepped up Sunday when W Acquisition improved its formal offer for the company from $40 a share to $44 a share in cash, or $444 million for the 10.1 million shares of the firm it doesn’t already own.

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Proxy Fight

The Galef-led group also disclosed that it is launching a proxy fight to defeat a recapitalization plan that would take Warnaco private by paying shareholders a package of notes, cash and stock some analysts have valued at $44 a share.

Securities analysts and major shareholders said Monday that Warnaco will be hard-pressed to persuade shareholders to accept its deal because the competing W Acquisition offer is all cash. They speculated that the company eventually will seek a friendly buyer instead.

For Galef, 53, the battle with Warnaco has meant new visibility in the financial community after spending nearly 30 years working in relative obscurity as a consultant.

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“He’s been really high-strung,” his wife said. “This is his first hostile takeover. It’s not his style.”

A Harvard Business School graduate who grew up in White Plains, N. Y., Galef for the past eight years has been a partner in Spectrum, an Encino investment and management firm he co-founded. Spectrum controls four diverse manufacturing businesses with combined annual revenue of about $1 billion.

For a group that controls such large operations, Spectrum is a small outfit. The office, which will move to the Westside next month, consists only of Galef, his two partners and three secretaries.

His home and life style, however, seem to reflect more than a fair degree of success in business. The walls of his house are covered with French Impressionist paintings from the late 19th Century, including the work of Galef’s favorite artist, Camille Pissarro.

$2.4-Million Home

The Galef home sits on a plot of land above Sunset Boulevard where Clark Gable and Carole Lombard once had a tennis court, next door to a mansion once owned by Alfred Hitchcock. According to Galef’s wife, the home is worth about $2.4 million. Nearby are the homes of family friends Jean Stapleton, the actress, and Joanna Carson, Johnny’s ex-wife.

As a novice at hostile takeovers, Galef said he occasionally has found the experience puzzling, particularly the large amount of time advisers spend speculating on what the other side is up to. He said he prefers to wait for the other side to act.

“We ought to be intelligent enough to react rapidly,” he said.

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But one analyst who follows Warnaco, Barry Lucas of the Raymond James & Associates brokerage firm in St. Petersburg, Fla., believes Galef might have moved too slowly by waiting until this week to launch the proxy battle to defeat Warnaco’s recapitalization plan, which will be considered by shareholders on April 25.

Galef said, however, that he is confident the fight will be successful, noting that Warnaco’s proposal needs approval of investors owning two-thirds of the shares outstanding. W Acquisition currently owns about 1% of Warnaco’s stock.

Galef said he first became interested in Warnaco two years ago while trying to help former Max Factor President Linda Wachner, one of his partners in W Acquisition along with his two Spectrum associates, find a consumer products company to run.

The two met shortly after Wachner left Max Factor. If they are successful at taking over Warnaco, Galef said, Wachner, 40, will run the company. She worked as vice president of Warnaco’s lingerie division for three years in the mid-1970s.

Rebuffed by Matura

Early last year, Galef, Wachner and Jeffrey Deutschman, 29, a partner in Spectrum who also is part of the W Acquisition group, visited Warnaco Chairman Robert J. Matura at his office in Bridgeport to ask if company executives were interested in arranging a management buy-out.

Matura, Galef said, told them he couldn’t discuss the matter on the advice of his lawyers and made it clear he wasn’t interested. Galef said he called back a month later, was rebuffed once more and dropped the matter.

Galef said he became interested in Warnaco again after receiving a call from Wachner concerning a newspaper account last fall of a buy-out Warnaco’s management was arranging valued at about $33.50 a share.

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Studied Statements

Galef and Wachner studied the company’s financial statements, formed W Acquisition as a shell company and last month launched their initial $36-a-share bid just before the company’s shareholders were to vote on the plan. Besides Galef, Wachner and Deutschman, the W Acquisition group includes Galef’s other Spectrum partner, Frank A. Grisanti, 65.

Warnaco executives did not respond to several requests for interviews regarding Galef and W Acquisition. Matura, however, has suggested publicly that Galef and Wachner aren’t qualified to run a large apparel firm such as Warnaco and said he twice turned Wachner down for a job as a Warnaco division president because she wasn’t qualified.

Galef called Matura’s statement nonsense.

“There are enough people out there who are willing to put up a lot of money to back us who must think we are capable,” Galef said, referring to investors who have committed to buying “junk bonds,” the low-rated, high-yield securities that the group plans to use to finance its bid.

He said his consulting work has given him some experience in the apparel business. “But I would not consider myself an expert,” he said.

In 1977, Galef was brought in to help revive Farah Manufacturing, a maker of slacks based in El Paso, Tex. He was ousted a year later after numerous battles with Chairman William F. Farah, who gained control of the company after a court ruled that he could use the voting rights of shares held by a family trust.

Committment Noted

Galef, who will serve as chairman of Warnaco if the takeover is successful, said his group is committed to taking over the company and is not just seeking a quick profit on its investment. He noted that the current paper profit on its 113,000 shares, which he said were bought at an average price of about $32.75, would not be enough to cover the $4 million in expenses that the group has incurred.

Galef says Warnaco has performed poorly since Matura took over as chief executive in 1983. Last year, Warnaco earned $22.5 million on revenue of $591.3 million. The profit was 10%, up from 1984’s net income but more than 20% off from 1983’s results.

Galef also suggests that Warnaco’s executives were trying to extract a bargain when they proposed the management buy-out last fall at about $33.50 a share. Officials from Warnaco have said they are willing to pay more now because the stock’s value has soared as a result of the strong securities market.

Traders Baffled

Some traders, however, said they are baffled at how quickly the company’s stock has climbed--appreciating 33% over the last month--and questioned whether it is worth its current market price. The stock closed Monday on the New York Stock Exchange at $44.875, up 87.5 cents.

The traders suggested that the company may have assets, such as real estate, that are not clearly apparent in its financial statements or that investors place a high value on its brand names.

“These guys must know something. I’ll be damned if I can see why this company is so wonderful,” said one New York arbitrageur, who asked not to be identified.


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