American Apparel Rejects Dov Charney-Led Takeover Bidby and
Clothing retailer will push forward with lender-backed plan
Chain's founder may need favorable court ruling to win control
American Apparel Inc.’s directors rejected the latest takeover offer involving founder and fired Chief Executive Officer Dov Charney, because he and the funds backing him refused to commit about $130 million needed for the deal to win over objections by the company’s senior lenders.
For Charney’s proposal to work, American Apparel would have to abandon its current plan and try to force all of the company’s main creditor groups to accept the new deal. Those groups, including senior lender Monarch Alternative Capital LP, have rejected the Charney offer, American Apparel said in court papers filed Friday.
That fight would take four months and require Charney and the funds backing him to pay off a $90 million loan that matures in February and provide $40 million to $50 million more for the company to use while it pushes for approval of the new proposal, according to the court documents.
The decision by American Apparel’s board means an offer valued at $320 million from three investment funds aligned with Charney must be further sweetened to win over the company, or they must persuade a judge next week to throw out the proposal that’s backed by the clothing retailer’s lenders.
Hagan Capital Group and Silver Creek Capital Partners have offered to buy the company and bring back Charney, who was fired in 2014 when the board accused him of misusing corporate funds and violating the sexual-harassment policy.
Time is almost up for the funds and Charney. On Jan. 20, the company is due in court to seek approval of its reorganization plan, which would cut about $200 million of debt. The chain would be taken over by a group of senior lenders, including Monarch.
Almost all the company’s creditors support the Monarch-backed plan, including a committee of unsecured creditors, who have settled the last of their differences with American Apparel. That leaves Charney as the only major objector to the proposal.
Charney, Chad Hagan of Hagan Capital and a representative of American Apparel declined to comment on the rejection.
The retailer struggled with losses and debt under Charney, and its results only worsened after his dismissal. When it filed for bankruptcy protection, it had $199.3 million of assets and $397.5 million of debt.
Charney has argued that the Hagan proposal is better for creditors than the company’s preferred plan. American Apparel’s investment bank said the retailer is worth as much as $270 million, assuming it hits sales targets in the next few years and can leave bankruptcy with no more than $135 million of debt.
The Hagan-led funds had made an offer valued at more than $200 million and sweetened it to the current bid earlier this week.
The case is In re American Apparel Inc., 15-bk-12055, U.S. Bankruptcy Court, District of Delaware (Wilmington).
APPCQ US (American Apparel Inc.)