Struggling retailer American Apparel reaches a deal with its largest shareholders
07/09/2014 5:01 PM
07/09/2014 5:01 PM
After a bruising three-week battle over the future of American Apparel, the struggling retailer reached a deal with its largest shareholders on Wednesday to remake the board of directors and try to shore up the company’s finances while keeping manufacturing in the United States.
The deal, struck by the New York investment firm Standard General, American Apparel’s board and Dov Charney, the company’s founder, is a fledgling effort at turning around the retailer just three weeks after the board voted to oust Charney from his position as chief executive.
And while the agreement is expected to provide an infusion of money for the company and a semblance of stability, a full rejuvenation remains far from certain.
According to a document filed with the Securities and Exchange Commission on Wednesday, the deal will include up to $25 million from Standard General to buttress American Apparel’s financial situation, which has been badly strained for years.
That money will give it a cushion to pay off a $10 million loan that was called in Monday by one of its longtime lenders, Lion Capital. That loan came with a credit-card-style interest rate of 20 percent.
Two weeks ago, Charney joined with Standard General to buy 27 million shares of American Apparel stock, bringing his stake in the company up to 43 percent. But in order to strike that deal with Standard General, Charney had to essentially relinquish his right to vote his shares unless he got approval from Standard General — leaving ultimate control of that 43 percent in the hands of the investment firm. Another small batch of shares that Standard General owns brings its stake to about 44 percent.
Charney struck this deal, signing away his power, because he had few options and because he was afraid of the alternatives that were circling his weakened company.
As it stands, the deal between Standard General and American Apparel is said to call for a largely remade board with only the current co-chairmen, David Danziger and Allan Mayer, staying on.
Whether Charney will stay or go depends on the outcome of an investigation the board began into his personal and professional conduct. Once the investigation is complete, the new board will decide what role, if any, he should have at the company, according to people with knowledge of the situation.
For years, Charney has been trailed by accusations of sexual harassment and was sued by employees who said he had created an unsafe work environment rife with innuendo and sexual misconduct.
The company’s investigation continues.