American Apparel Strikes Deal to Save Company (and Maybe Even Dov Charney)

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Passers-by walk past a sandwich-board sign advertising dog fashions in front of the American Apparel store in the Shadyside neighborhood of Pittsburgh on Wednesday, July 9, 2014. American Apparel Inc. has reached a preliminary deal with investment firm Standard General to receive $25 million in financing to bolster the clothing chainâ

Image: Keith Srakocic/Associated Press

By Jason Abbruzzese2014-07-09 21:10:44 UTC

American Apparel has struck a takeover agreement with hedge fund Standard General in a deal that will remove founder Dov Charney and four other members of the clothing company's board of directors.

However, Charney is not completely done at the retailer. The terms of the agreement dictate that he will stay on as a "strategic consultant" until the end of the investigation into his actions.

See also: American Apparel Ousts Controversial CEO Dov Charney

Charney could be reappointed CEO depending on the findings of the new committee.

Standard General will provide $25 million to American Apparel, which has been under pressure from creditors following the release of Charney as CEO.

The deal could mark the end of a battle between Charney and the company's board over control of the retailer, which had threatened to put American Apparel into a dire financial position.

The board of directors of American Apparel relieved Charney of his duties as CEO in mid June after a probe into his business decisions and personal behavior, but he remained on the company's board of directors. Charney has been the subject of numerous lawsuits for his behavior with young female employees.

The agreement does put some limit on Standard General's control of the company, preventing it or Charney from accruing any more shares in American Apparel. Charney and Standard General would also be limited to voting with one-third of the company's shares on any issue put to stockholders.

David Danziger and Allan Mayer will remain with American Apparel as co-chairmen of the board, positions they assumed after Charney's removal.

Danziger told Mashable that the move was done with the best interests of the company in mind, adding that Charney's future with the company remained unclear and would heavily depend on the results of the investigation.

"I can't tell you whether or not, depending on the results of the investigation and their determination...whether or not the rest of the board might ask him to stay on," Danziger said. "In the near term, I think his future with the company will be determined to a great extend by the results of that investigation."

Danziger added that he did not believe Standard General to be particularly loyal to Charney, noting that it now had a major financial incentive in taking steps for the benefit of the business of American Apparel.

"I think that [Standard General] are very smart guys. I think that to say that they are in his corner would probably not be accurate. I think that they're in the company's corner," he said. "They're an equity player. They've done very well, and I think they see an opportunitty rebuild this company and make a lot of money on their investment."

Charney had recruited Standard General to help in an attempt to accrue enough American Apparel stock to take back control of the company. Since his ouster, American Apparel has been squeezed by Lion Capital, which had demanded repayment of a $10 million loan after Charney was removed. That sent American Apparel searching for other financiers that would be willing to extend the company a line of credit.

The new deal, which was announced on Wednesday in a press release, will give Standard Life control of three seats and a say in two others — effectively giving control of the clothing company to the hedge fund. Allan Mayer and David Danziger, co-chairmen of American Apparel's board, will stay on. In return, Standard General is promising financial support to the company.

The move leaves the door open for Charney to be reappointed as CEO by the new board, whose members have yet to be announced. However his removal from the board as part of the terms of the deal implies that his alliance with Standard General left him with limited

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Topics: American Apparel, Business, dov charney, retail