American Apparel Inc. received a $300 million takeover bid from an investor group that would bring back controversial founder Dov Charney to the bankrupt clothing chain.
Hagan Capital Group and Silver Creek Capital Partners, the investors backing the offer, announced the proposal in a statement on Monday, saying it was superior to a bankruptcy plan that would hand ownership of the company to bondholders. The investment would be overseen by the private equity arm of PressPlay Global, a company with offices in San Francisco and Shanghai, according to the statement. The bid represents a sweetened version of an offer first reported by Bloomberg last week.
If accepted, the proposal would mark a surprising return for Charney, who was fired from the Los Angeles-based company in 2014 for alleged misconduct. The board ousted the executive after saying it found examples of misusing corporate funds and violating the chain’s sexual-harassment policy. The investors supporting his comeback say his split from the company contributed to its deterioration.
“Dov’s creativity, entrepreneurialism and dedication are the cornerstone of American Apparel,” Chad Hagan, managing partner of Hagan Capital, said in the statement. “Removing him from the company’s board and leadership was a shortsighted mistake, and we are seeing the results of this error unfold in the declining performance of the company today.”
American Apparel’s current management, meanwhile, is pushing ahead with its prearranged bankruptcy plan. The company said on Monday that it has unanimous approval of all voting classes to accept that transaction. The plan also includes a commitment for $40 million more in capital, backed by a credit line.
The Charney-supported proposal includes $130 million from the investor group, with $90 million of new stock and $40 million from a term loan. American Apparel would exit bankruptcy with $160 million in cash and new equity and a $50 million credit line, according to the statement. It also would have a cushion of $90 million in equity, compared with about $75 million under the earlier debtor plan, the investors said.
The total enterprise value of the bid amounts to $300 million, compared with $180 million to $270 million for the debtor plan, according to the statement. Senior lenders would be repaid in full, compared with a 33 percent to 77 percent recovery with the other proposal, the investors said. Unsecured creditors would get 10 times more than they would under the debtor plan, they said.
After struggling with declining sales and mounting losses, the company sought protection from creditors in October with a prearranged plan. Bondholders, led by Monarch Alternative Capital, would take ownership of the company in exchange for a reduction in debt. The proposal was supported by 95 percent of secured lenders, who will be fully repaid under the proposal.
Charney, 46, founded the company in 1998 and built an apparel chain known for domestic manufacturing and racy advertising. He has developed a business plan that the investor group says would quickly improve American Apparel’s performance.
“American Apparel is a proven viable business model that needs to be scaled from a sales point of view and should not be in bankruptcy,” Hagan said. “If the company is not turned around, it will be a pointless loss of American manufacturing jobs. We strongly urge the creditors to evaluate and accept our offer.”
The case is In re American Apparel Inc., 15-12055, U.S. Bankruptcy Court, District of Delaware (Wilmington).