Clothing retailer American Apparel just fired former CEO Dov Charney. But rumor has it he’s trying to buy back the company he founded. This situation might look similar to instances in which other CEOs stepped aside or were pushed out only to return later on to save the business they created, but that’s where any similarities end, The Motley Fool (TMF) said.
Michael Dell stepped down as CEO of Dell only to return several years later as the company struggled to navigate a changing landscape in PCs. He ultimately took Dell private to keep it out of the public eye as he reorganized the turnaround, the report said.
Similarly, Steve Jobs was fired from Apple in 1985 only to triumphantly return 12 years later at the request of the board to lead the faltering tech giant forward to an incredible resurrection.
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But when it comes to American Apparel, this company is no Dell computer and Charney is no Steve Jobs, TMF said.
The retailer is an idiosyncratic mix of blind loyalty and crass opportunism blending prurient advertising and Made-in-the-USA manufacturing. Some say the dichotomy is emblematic of Charney himself, and that American Apparel will wither and die without his leadership, according to the report.
The retailer lurched into turmoil this summer when the board of directors abruptly fired Charney for undisclosed allegations of willful misconduct. Considering that this followed years of such allegations (and a few settlements), it was left to the imagination as to what new evidence the board uncovered, TMF said.
Yet Charney partnered with hedge fund Standard General to maneuver a takeover of the board, leading to a stay of the dismissal until a complete investigation was conducted. Charney was kept on in a creative role and an interim CEO was appointed, the report said.
That ended in December when the board — consisting of members appointed by the hedge fund — fired Charney again for misconduct, including sexual harassment and misuse of corporate funds, TMF said.
But the board created a new controversy by appointing a new CEO, Paula Schneider, without taking into consideration the opinions of the company’s managers. A group of 30 managers loyal to Charney who wanted him to continue in some capacity at the retailer asked the board in writing to reconsider its decision, the report said.
Now American Apparel is reportedly the target of several buyout bids, including one supposedly from Charney himself with backing from Irving Place Capital that is willing to pay up to $1.40 per share for the company. Charney still owns 43% of the retailer’s stock, though Standard General controls the shares as collateral on its original loan to Charney, according to TMF.
This isn’t anything like Michael Dell or Steve Jobs returning to save their companies. Their return didn’t set the stage for even greater turmoil, but rather for a period of calm. American Apparel is more like a game of Russian roulette with its former CEO spinning the barrel and leaving investors wondering when the next shot will go off, the report said.
