The Quiet Hedge Fund That Came to American Apparel's Rescueby
There were lots of questions in the tumultuous weeks after Dov Charney was ousted from American Apparel by a board of directors he had mostly chosen. Scrambling to regain control of the company he founded, Charney seemed to find a partner in Standard General. Among the questions: What’s Standard General?
Short answer: a New York hedge fund that manages about a billion dollars in assets and looks to invest in good companies with bad balance sheets. It struck a deal with Charney to buy shares in American Apparel on his behalf and then loan him the money to buy the shares from the firm. The loan, of almost $20 million, came with a 10 percent interest rate. Next, Standard General and Charney agreed the hedge fund would control Charney’s 43 percent stake; then Standard General made a deal with American Apparel, and Charney, to provide at least $25 million and restructure the board.
Soo Kim co-founded the fund in 2007 after working at Bankers Trust, Och-Ziff Capital Management, and starting Cyrus Capital Partners. Last year, Institutional Investor named Kim, then 38, one of the rising stars in the hedge fund world. So why choose a name that seems designed to deflect attention? “I think the name really captures the firm’s culture. We’re not flashy. We want to be seen for who we are—enduring, even old-fashioned,” says David Glazek, a partner who has been the spokesperson for the firm on all things American Apparel. “If we can find a bargain in a chaotic, but fixable situation, we tend to gravitate towards it.”
Standard General has a small stake in RadioShack, another troubled retailer, and a passive investment in Sprint. It once made a bid (PDF) to revitalize the Playland amusement park in Rye, N.Y., which Kim had visited as a kid. The firm’s most successful effort so far has been with a broadcasting company called Media General (the name is a happy coincidence).
Several years ago, Standard General invested in Young Broadcasting, a $300 million company that was in bankruptcy because of an expensive and failed acquisition. It helped Young improve the technology in its television stations and refinance its balance sheet. Standard General orchestrated a reverse merger last year between Media General and Young Broadcasting, and together the two companies were worth about $2 billion. This March, Standard General put together a second deal to merge Media General with LIN Media. If the deal wins regulatory approval, the company will be worth $5 billion, Glazek says, and Standard General will own a 20 percent stake.
Glazek says Standard General doesn’t expect to try the same kind of dealmaking at American Apparel. “In the broadcast industry there are tremendous advantages to consolidation,” he says. “That’s not necessarily true for a retail brand.” Standard General has made a commitment to maintaining American Apparel’s made-in-America, sweatshop-free philosophy. The company, which has a factory in downtown Los Angeles, is the biggest apparel manufacturer in the country.
Sometime in the next two weeks or so, American Apparel will be getting a mostly new, seven-member board. Only the two co-chairmen, Allan Mayer and David Danziger, will remain. Standard General will take one seat for itself and select two other members. It will also choose two other board members with American Apparel. Charney isn’t taking a seat on the board, where he used to be chairman; his title, for now, is strategic consultant. No one has said what that means. “The board will decide the scope of Mr. Charney’s duties,” Glazek says.
Three members of the board will also oversee the investigation into Charney’s alleged misconduct and evaluate the findings. “The single most important thing is that the investigation is thorough, fair, and complete,” says Glazek. The hope is that the probe will be completed in something close to 30 days. Then Charney’s fate will be determined. He told me last week: “I believe Standard General will treat me fairly.”