Friday, 1 August 2014
Last updated 5 hours ago
Jul 3 2014 | 7:33am ET
American Apparel’s founder and former CEO has put his future at the company—and his enormous stake in it—in the hands of hedge fund Standard General.
Dov Charney, who was fired last month over allegations of financial irregularities and sexual harassment, has given control of his 27% stake in the struggling clothing manufacturer and retailer to the New York-based hedge fund, a longtime American Apparel investor. Under the terms of the deal, Charney has agreed to let Standard General make all decisions as he seeks to retake control of his former company.
“I handed over my ownership control to Standard General so they could protect the company and all of its stakeholders, particularly the employees,” Charney told The New York Times. “The least important thing was me. I know that will be dealt with fairly later.”
Standard General, which now controls 43% of American Apparel shares, plans to negotiate directly with the company’s independent directors.
“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,” co-chairman Allan Mayer told the Times. “If Standard General truly fits the bill, that would be great. So far, we have every indication that they do fit the bill, but we’re still exploring.”
Charney had sought—with Standard General’s help—to scoop up a majority stake in American Apparel amidst his dispute with the board. After borrowing Standard General’s shares, he had control of 43%. But American Apparel quickly adopted a poison pill to block Charney’s plans and has refused to meet with him, leading the entrepreneur to change his strategy.
“We recognize that the board is in a very difficult position here, and they’re trying to do the right thing,” Standard General’s David Glazek told the Times. “We really think that this is fundamentally not a fight between the board and Charney; this is a fight between different investors with different visions for how to transform and rejuvenate this company.”
Another hedge fund has its own vision: Monarch Alternative Capital, American Apparel’s largest secured creditor. That firm wants the company to give up its U.S.-only manufacturing strategy, close its Los Angeles factory and outsource manufacturing to China, the New York Post reports. Monarch denied the allegations, saying it “supports a ‘made-in-America’ strategy.”
But the hedge fund, which owns two-thirds of American Apparel’s secured debt, has apparently been singing a different tune in talks with interim CEO John Luttrell, the Post writes.
Charney has agreed not to seek a return to the company’s board, and to suspend his bid to get his CEO job back until after an investigation into his conduct by FTI Consulting is completed.