Shares of American Apparel (APP) spiked 27% in less than half an hour on Friday after word leaked out that former CEO Dov Charney had found a sugar daddy backer to help him regain control of the company. The backer, a firm called Standard General, was set to buy more than 10% of outstanding American Apparel shares then sell them to Charney who already owns more than 27% of the company.
Over the weekend American Apparel's board adopted a poison pill that was filed as an 8-K this morning. This new so-called "modification to rights" says Charney's deal with Standard General won't increase his voting rights, effectively defeating the purpose of the agreement.
All of this is in the context of American Apparel's default on a $10 million loan from Lion's Capital. The default was triggered when the board ousted Charney on June 18th. In a darkly ironic twist British Based Lion's Capital has given American Apparel until July 4th to refinance the loan or, and this is where it gets weird, possibly bring back Dov Charney.
Meanwhile the New York Post reported over the weekend that Charney and American Apparel are fighting over a company server that reportedly contains "personal photographs" of Charney's. Given the sexually charged history of scandal with Charney the general assumption is that the server isn't loaded with pics of fully clothed family vacations and puppies.
This matters because, despite being only four days from possible bankruptcy, American Apparel still does more than $650 million in revenues and employes more than 10,000 people in 20 countries. For all of his curious behavior Charney is a retail and manufacturing visionary. The board would disagree, but without Charney there is no American Apparel. Depending on the whims of Lions Capital and the financial markets that may be a literal statement. All this is great grist for the mill on a slow news week but a potential disaster for speculators. Like American Apparel catalogs and store windows, the stock is not safe for work or your portfolio.
- American Apparel
- Dov Charney