Payday lending pioneer Allan Jones has secured permission from a bankruptcy judge to buy the oldest suitmaker in the U.S. for $1.9 million, in a deal designed to save Cleveland, Tenn.-based Hardwick Clothes from its mounting debts.
Jones, who will buy a business that loses more than $100,000 per month, plans to turn around the clothing manufacturer and make it profitable, he said. But keeping the company's 235 workers busy sewing will require millions more dollars from Jones over the next few years, he admitted Friday at U.S. Bankruptcy Court in Chattanooga.
"The purchase price is just the down payment," Jones said.
He'll have to open up the checkbook as soon as he closes on the deal to pay off Keltic Financial Partners, which granted a revolving line of credit to carry Hardwick through the bankruptcy proceedings. That loan alone will be worth an estimated $735,000 by the June 16 closing, not to mention hundreds of thousands of dollars in capital improvements that the Hardwick family had postponed.
Jones already reduced his original $2 million offer to $1.9 million during "tense" negotiations, after a property review discovered underground diesel storage tanks and structural issues.
But Cleveland's wealthiest businessman thinks the ailing 134-year-old clothier is salvageable.
"There is a market for 'American made,'" Jones said. "I think the pendulum is swinging the other way."
Jones' attempt to buy the business was almost derailed by rival buyer Joe V. Williams III of Chattanooga, but Jones triumphed by the virtue of being able to pay cash.
Though Williams' bid was $200,000 higher, the real estate broker failed to put up the upfront cash as required, and also was unable to do the deal without securing financing. The debts to Keltic could have risen to $1 million had the company waited until the end of August to sell to Williams, as he requested, diluting the value of his higher offer.
To make matters worse, Williams' attorney, David Fulton, asked to be removed from the case, citing "other circumstances." Williams was denied permission to address the court, as no attorney would call him as a witness, and Fulton and Williams left the courtroom mid-hearing. That left Jones as the last man standing.
Jones is close to picking out a new CEO to replace current chief Tommy Hopper, who has run the company for the Hardwick family for the past 17 years. Hardwick is among the last of the U.S. businesses that still produce tailor-made clothing, blazers, sport coats and uniform in spite of billowing economic headwinds. The company has lost money for the last several of those years, because of foreign competition from overseas clothing manufacturers with far lower labor costs, and low trade barriers for foreign-made goods, officials said.
"We've got to get sales up," Jones said. "I'm really impatient, ask my staff. They'll tell you my favorite term is the word 'now.'"
Though he'll ultimately let a professional CEO run the business, he's already got a few ideas on how he's going to revive Hardwick's flagging fortunes.
"Going casual has become a thing," Jones said. "Going forward we'll make the best navy blazer in the world, then we're going to make the best khaki pant."
Founded in 1880 by C.L. Hardwick, Hardwick Clothes is Cleveland's oldest manufacturer, but filed for bankruptcy in December because it was unable to make a required payment to the U.S. Pension Benefit Guaranty Corp.
The company froze its defined benefit pension plan in 2006 and, after taking market losses during the Great Recession, asked the PBGC for assistance in shoring up its underfunded pension plan. Hardwick's pension plan covers 644 employees and retirees and has continued to make its promised retirement benefits.
But PBGC determined with only $11 million in assets, the plan was inadequately funded and ordered Hardwick in October to pay $7.3 million or it would file a $1.5 million tax lien on the company, forcing the company to seek bankruptcy protection.
The Hardwick family previously sold its woolen mill in the 1950s to Peerless Mills, which later sold to Burlington. The founding family also started Hardwick Bank in Dalton and Hardwick Stove Co. in Cleveland. Both of those businesses were previously sold to other companies.
Hardwick Clothing moved out of its downtown Cleveland mill in 1974 and to its current 175,000-square-foot plant. Over the years, Hardwick has sold every type of men's garment imaginable, including jeans, dollar pants, knicker suits, even convict stripes and leisure suits.
In the early days, the company spun the fabric and sewed the clothes in a single factory, leading to the company motto, "From the sheep's back to the clothing rack."
Jones says that he plans to fly the 38-star flag over the business once he secures the purchase, to commemorate the company's glory days. Though he hasn't set a timeline or promised that the company will return to its former high of 900 employees, he did say that Hardwick was getting "all of my attention," calling the company's employees its "biggest asset."
"This is very important to the community of Cleveland, there's a real sense of pride," he said. "But just because I own the business doesn't mean we won't still struggle. This will be a new venture for me."
Jones owns a number of short-term lending services, such as Check Into Cash, Loan by Phone, U.S. Money Shops, Buy Here Pay Here USA, LendingFrog.com, but has also diversified into real estate, dining and services. His holdings are controlled through Jones Management Services, which is based in a former shopping mall in Cleveland.
Jones on Thursday bought 62 acres of the property formerly known as Hardwick Field for $750,000.
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