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American Apparel’s former CEO has a new ally in his fight to retake the company which he started.
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New York investment firm Standard General LP has agreed to back Dov Charney in his bid to take control of American Apparel, a firm which he founded. It will aid him in the acquisition of more shares to increase his current 27% stake in the company.
Charney was fired from American Apparel for cause as its CEO on June 18th. The termination resulted from a scandal centered on nude pictures of a company employee that were posted online, as well as allegations that Charney misused corporate funds for his family and friends. The employee in question had accused Charney of using her as a sex slave.
Just days after his dismissal, the controversial entrepreneur formally notified the Securities and Exchange Commission that he would attempt to make changes to the company’s board and management in an effort to return.
According to an amended 13-D filing with the Securities and Exchange Commission, Standard General and Charney have agreed that should the investment firm succeed at acquiring as much as 10% of American Apparel’s shares then it will provide control of those shares to him as part of a complicated loan.
The loan comes with a hefty 10% annual interest rate, but is guaranteed by Charney’s stock in the company.
In response American Apparel Inc. has adopted a stockholder rights plan in an attempt to prevent its former CEO from regaining control of the company which he founded. In what is commonly referred to as a poison pill plan which dilutes stock acquired by someone attempting a hostile takeover as Charney is doing, the firm will allow anyone with more than a 15% stake in it to purchase additional shares of the company’s common stock for $2.75 a share.
It released a statement saying, “The rights plan is designed to limit the ability of any person or group, including Dov Charney, to seize control of the company without appropriately compensating all American Apparel shareholders. It is intended to provide the board of directors and stockholders with time to make informed judgments.”
Charney’s corporate machinations have, however, been a boon for his former employer’s stock, probably because of Standard General’s fast purchase of large blocks of it. By the end of Friday’s trading American Apparel rose 29% with 14% of its stock turning over throughout the day. All told the company’s shares have risen 83% since Charney’s takeover bid began.
While its stock’s value may be on the rise, American Apparel has incurred credit problems due to the firing of Charney. Last week Lion Capital, one of the firm’s creditors, called in a $10 million loan. Apparently, under the terms of the loan which came with a 20% interest rate, Lion Capital could call it in should Mr. Charney part with the company.
The company says that it is negotiating to continue the loan.
American Apparel currently has a high debt of more than $200 million and has lost more than $270 million in the last four years.
Dov Charney first began making T shirts as a teenager and started the American Apparel brand name in 1991, while he was still a student at Tufts University in Boston, initially specializing in personalized screen printing.
The Canadian born entrepreneur moved with his company to the West Coast in 1997. Three years later American Apparel moved into a massive seven-story 800, 000-square-foot warehouse in downtown Los Angeles, as the company enjoyed continued growth as an importer and wholesaler, principally marketing in blank T-shirts to screen printers, uniform companies and fashion brands.
