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American Apparel’s Ex-CEO Plots a Return

 

American Apparel founder Dov Charney is reaching out to potential investors

American Apparel filed for chapter 11 in October and is now completing a reorganization. 

American Apparel filed for chapter 11 in October and is now completing a reorganization. Dec. 4, 2015

Dov Charney, the ousted founder of American Apparel Inc., has been reaching out to potential investors about making a bid for the company, according to people familiar with the situation.

Mr. Charney, who was fired a year ago over allegations of misconduct, would face an uphill battle in winning back the company he started in 1989 as a T-shirt maker. American Apparel filed for chapter 11 bankruptcy protection in October and is now completing a reorganization that would exchange about $200 million worth of debt for equity. That step would wipe out shareholders, including Mr. Charney, who is the Los Angeles-based retailer’s largest stockholder.

A successful bid would likely have to exceed $350 million in order to cover the money owed to bondholders, as well as pay off $90 million in debtor-in-possession financing and provide the $40 million of exit financing that is part of the chapter 11 plan. The plan has the backing of 95% of the company’s secured lenders. A hearing to confirm the plan is scheduled for Jan. 20.

An American Apparel spokeswoman said the company evaluates indications of interest, but that there was currently no transaction for the board to consider.

Mr. Charney said in a press statement on Friday that he has hired Cardinal Advisors LLC, a Los Angeles investment bank, to advise him on an evaluation of strategic alternatives involving the company. Bloomberg News had earlier reported Mr. Charney had hired Cardinal and was exploring a potential bid for the retailer.

American Apparel’s advisers received a letter several weeks ago indicating that Mr. Charney was interested in making a potential bid for the company, but it was unclear whether he had secured the financial backing, some of the people familiar with the matter said. Discussions haven’t progressed from there, these people said.

Mr. Charney is keeping an open mind about the role he would play at the company should he succeed in finding an investor willing to buy it, one of the people said. He would like to have a meaningful involvement in running the business, but isn’t demanding that he be reinstated as chief executive, this person added.

Mr. Charney built American Apparel into a hip retailer known for its sexy-spin on classic T-shirts and leggings, while also winning admiration for his commitment to manufacture in the U.S. But allegations of sexual harassment and other misconduct dogged him, despite his repeated denials that he had done anything wrong. And under his leadership, the company’s financial position deteriorated.

The financial problems worsened once he was removed from the company in December 2014. For the nine months through Sept. 30, the company lost $65 million on $385 million in sales. It has about 9,000 employees and more than 200 stores.

 

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