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Dov Charney Not Guaranteed to Return As American Apparel CEO

Even if Mr. Charney succeeds in gaining a majority control of the company he founded he still might not become CEO again.

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There is yet another twist in the seemingly never ending tale of Dov Charney’s attempted return to American Apparel. Now it has been reported that the company’s former CEO has given Standard General, the investment firm which he enlisted to aid him in the buying up of shares in the clothing manufacturer, control over all his stock.

The transfer of voting control was originally reported by the New York Times.

This was part of the deal that Charney reached with Standard General last Friday. That firm informed its investors that the agreement, “is not about the founder [Charney], nor is it an endorsement of him.” The investment firm is currently negotiating with American Apparel’s board for a peaceful settlement of the takeover fight.

The negotiations include the hiring of a new management team for the company and a promise that it will continue to produce its clothing in the United States and not send jobs abroad to take advantage of much cheaper labor in South East Asia.

After Standard general began buying up American Apparel last week Charney was reported to have increased his personal stake in that business to 43%, up from 27% at the time of his termination.

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

Standard General stated in a letter to its investors, “The founder has agreed that he will not serve on the board nor play any leadership role in the company until the process is complete, and he will serve no role if he is deemed unfit.”

In response, Allan Mayer, the new co-chairman of American Apparel’s board said, “We’ve said from the beginning that our goal is to find new leadership for American Apparel that’s not only smart about the business, but also committed to the principles on which the company was built. If Standard General truly fits the bill, that would be great. So far, we have every indication they do fit the bill, but we’re still exploring.”

Mr. Charney was quoted as saying, “I handed over my ownership control to Standard General so they could protect the company and all of its stakeholders, particularly the employees. The least important thing was me. I know that will be dealt with fairly later.”

American Apparel is currently conducting an investigation into Dov Charney’s alleged offenses when he served as its CEO. Its board has contracted an outside firm, FTI Consulting, to handle the inquiry and its report is expected to be ready within two weeks’ time.

But a more pressing matter that it is facing is how to repay the $10 million loan that it owes the British firm Lion Capital which demanded to be repaid after Charney was fired. Lion had offered the company until today to reach an agreement with it on payment, but might be assuaged if American Apparel and Standard General can come to terms on a new board.

One issue was how Charney treated the company’s employees. To counter sexism charges American Apparel is now reportedly looking to add more women to its board.

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.

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.




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