Dov Charney Fights American Apparel, and the Company Fights Back

American Apparel Inc Founder Dov Charney Photograph by Keith Bedford/Bloomberg

Dov Charney was pushed out as chairman and chief executive of American Apparel on June 18. Did anyone think he would leave the company he founded without a fight? The battle was initially waged in the public arena: There were leaked letters containing the details of his firing and threats of legal action by Charney’s attorney. The new co-chairman of the company, Allan Mayer, gave the board’s account of Charney’s ousting. Charney accused the board of unleashing a “hateful” campaign against him.

Now the battle has become more complicated. Charney, who owns 27.2 percent of American Apparel, revealed in a Securities and Exchange Commission filing that he intends to increase his stake. Charney has worked out an agreement with a firm called Standard General, which is acquiring shares (at least 10 percent of those available), then lending Charney the money to buy them. The loan has an annual interest rate of 10 percent and has to be paid back in five years; Charney’s stock is collateral. On its website, Standard General says its invests in companies that are “undergoing dramatic change or are faced with material events.” So: Good fit.

It’s not clear how much stock Standard General has bought on Charney’s behalf, but someone has been buying American Apparel shares in recent days. The company isn’t waiting to find out. Early on Saturday, June 28, a special committee of the board adopted a one-year shareholder rights plan—a poison-pill defense—to keep Charney from taking control of the company. “The rights plan is designed to limit the ability of any person or group, including Dov Charney, to seize control of the company without appropriately compensating all American Apparel stockholders,” the company said.

No word yet on Charney’s next move. But it’s only Monday.