Wednesday, 25 May 2016
Last updated 33 min ago
Jul 10 2014 | 6:18am ET
Hedge fund Standard General has finalized a deal to help save struggling retailer American Apparel.
Under an agreement struck yesterday, Standard General will provide up to $25 million in financing to the Los Angeles-based company. The money will help shore up American Apparel’s finances, and some will go to repaying a $10 million loan from private-equity fund Lion Capital.
In exchange, the hedge fund will appoint three of the seven members of a newly-constituted American Apparel board, with two other directors jointly agreed upon by Standard General and the current board, five of whose members, including founder Dov Charney, will step down. Co-chairmen David Danziger and Allan Mayer will retain their posts.
Four of the five new directors will be independent.
The deal comes after Standard General began working with Charney, who was fired as CEO last month amidst allegations of sexual harassment. The hedge fund and Charney pooled their shares, which amount to a 44% stake in the company, in an effort to take control of it, but were stymied when American Apparel adopted a poison pill. Under his agreement with Standard General, Charney gave the hedge fund the right to vote his shares.
American Apparel has been losing money for years, and the turmoil made its financial condition even more acute: Lion called in its loan after Charney was fired as CEO last month amidst allegations of sexual harassment and declared the company in default this week, a dispute that could have pushed American Apparel into default on another, larger line of credit from Capital One.
In spite of having a hand in choosing a majority of board members, the new deal does not give Standard General control over the company. The hedge fund has agreed to a standstill agreement barring it or Charney from acquiring any additional shares through next year’s annual meeting, and will vote only one-third of the company’s shares until that time. It has also formally agreed to see out the investigation into Charney before a decision on his future is made, and pledged support to the company’s “Made in USA” manufacturing philosophy, American Apparel said in a statement.
In the meantime, Charney will serve as a paid consultant to the company.
“This truly marks the beginning of an important new chapter in the American Apparel story,” Mayer said. “With the support of Standard General, we are confident the company will finally be able to realize its true potential.”