87personal bank loan of $65 million in case he defaulted—which
he did. The board, which earlier had set his compensation at
nearly $20 million and repriced stock options to signif icantly
favor key executives, then forgave $10 million of the loan.
In spite of the cost-cutting attempts, the company was
sinking deeper into the red. In 1999, Fruit of the Loom posted
losses of $576 million, seven times larger than analysts’ expec-
tations; and gross margins sagged to a paltry 2 percent, not
enough to cover the $100 million interest expense needed to
service its $1.4 billion debt. That same year the Council of In-
stitutional Investors listed Fruit of the Loom as one of the na-
tion’s twenty most underperforming companies. Shareholders
cringed as the stock price plunged: From $44 a share in early
1997 to just over $1 by the end of 1999; in that one year, 1999,
the shares lost more than 90 percent of their value.
Few were surprised, therefore, when the company f iled for
Chapter 11 bankruptcy protection in December 1999. The com-
pany’s shares sank even lower, and by October 2001 were down
to $0.23.
So why would Warren Buffett be interested? Two reasons:
a very strong brand that offered growth potential under the
right management, and the arrival of a man on a white horse.
John B. Holland had been a highly respected executive
with Fruit of the Loom for more than twenty years, including
several years as president and CEO, when he retired in 1996. In
2000, he was brought back as executive vice-president charged
with revamping operations.
Holland represents a perfect example of the management
qualities Buffett insists upon. Although publicly he remained
largely silent about Farley, beyond a brief reference to “poor
management,” Buffett has made no secret of his disdain for ex-
ecutives who bully their boards into sweet compensation deals,
and boards that allow it. In contrast, he is enthusiastically vocal
about his admiration for Holland.
(Continued)