Rivals agree that a cure for Cone is in the jeans.

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The battle between management and a Minnesota investment group for Greensboro-based Cone Mills Corp. raises a big question: Why would anyone want to spend millions of dollars on a money-losing textile company?

To the group led by investment manager Marc Kozberg, the answer is simple: There's a lot of money to be made when the industry recovers. Struggling against a global denim glut, the world's largest producer lost $14.2 million on sales of $478.9 million the first nine months of 1999 after earning $7.4 million on sales of $574.8 million during the period in '98. A $12 stock in 1995, Cone spent most of '99 trading between $4 and $6.

"We buy businesses based on what they can do in the future, not what they have done in the past," Kozberg says. "Cone Mills has the potential to make a lot of money again in the future."

His group began buying in late '98 and, with 3.2 million shares, is now the biggest shareholder, controlling about 12.6%. In May, Kozberg offered to buy the rest at $8.25 a share, a 37.5% premium over the trading price. Cone rejected the offer. He requested seats on the board. Cone said no, then adopted a poison-pill provision to let the company fend off a takeover by issuing additional stock to shareholders. Kozberg says he will try to elect his own slate of directors.

Analyst Tom Lewis, of C.L. King & Associates in Albany, N.Y., says the denim glut has started putting weaker manufacturers out of business. Lewis figures Kozberg's group is "betting that demand for what you make out of denim -- basically jeans -- will continue to grow. If there is 10% too much capacity today, and demand grows 5% per year, in two years you are back in balance again. The problem is, these numbers are hard to pin down."

Cone is counting on the same thing. In a written response to questions about the Kozberg move, it said, "Management has restructured, drastically reduced overhead, streamlined operations and taken the necessary steps to turn the company around. The company expects to emerge as a leader in the textile business in the year 2000." As for Kozberg's offer, Cone calls it unwanted and unwise. "Management and the board believe that the proposal to take Cone Mills private would be a distraction of efforts and capital away from its stated commitment."

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