Published On: Wed, Jul 2nd, 2014

Dov Charney Makes Headway in His Takeover Bid of American Apparel

Following the Dov Charney takeover bid is kind of like following a close race for the pennant in baseball.

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Dov Charney is getting closer to his goal of gaining a majority control of the company which he founded and once ran, American Apparel. The controversial businessman has now increased his personal stake in that business to 43%, up from 27% just two weeks ago.

He now controls 74.6 million out of the company’s 173 million outstanding shares.

The former CEO once had a 40% stake in the firm, but his shares were diluted when new stock was issued by American Apparel this past spring.

According to an amended 13-D securities filing made with the Securities and Exchange Commission early Tuesday, Charney has borrowed $19.5 million from Standard General in order to acquire more American Apparel stock. The filing also divulged that Standard General had purchased 27.4 million shares in the company on Friday at a price of $0.715 a share. This helped boost the stock’s value and by Monday the investment firm had to pay $0.91 a share when it bought another 1.54 million shares.

This comes just days after an agreement between Standard General and Charney was made public 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.

 

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American Apparel has not been taking Mr. Charney’s moves lying down. In response it adopted a stockholder rights plan in an attempt to prevent its former CEO from regaining control of the company. 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.

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.

Since Charney’s dismissal, American Apparel shares gained 20%. This, however, may have only been the result of the former CEO’s making public his takeover bid. The aggressive buying of all available shares that followed coupled with an expectation by investors that a takeover battle would cause the stock to gain value were probably the reason for such a sharp and sudden rise. After Standard General completed its recent stock acquisition, its value dropped 6%.

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.

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