Charney Submits Offer To Buy American Apparel

Former American Apparel (asi/35297) CEO Dov Charney and an investor group have submitted a $300 million bid to reacquire the company he was ousted from over a year ago. The group – comprised of three private equity firms – announced the offer to purchase the bankrupt apparel company yesterday, saying in a statement that its proposal “is superior to the debtor's plan of reorganization and is a win-win solution for [American Apparel] and all of its stakeholders.”

“Dov's creativity, entrepreneurialism, and dedication are the cornerstone of American Apparel,” said Chad Hagan, managing partner of Hagan Capital Group, one of the investing companies. “Removing him from the company's board and leadership was a shortsighted mistake and we are seeing the results of this error unfold in the declining performance of the company today."

The group increased its current bid amount after American Apparel reportedly rejected a $200 million offer submitted by Charney and investors in December. The investor group believes the offer, which it says would allow American Apparel to exit bankruptcy with approximately $160 million of liquidity and new equity, including cash, is better than the supplier’s current bankruptcy plan. The group said unsecured creditors would receive ten times more, and the company’s original senior lenders would receive back all of their money. The investor group said that in American Apparel’s bankruptcy disclosure statements, the company was valued between $180 million and $270 million.

"American Apparel is a proven viable business model that needs to be scaled from a sales point of view and should not be in bankruptcy,” Hagan said in a statement. “If the company is not turned around it will be a pointless loss of American manufacturing jobs. We strongly urge the creditors to evaluate and accept our offer.”

Yesterday, American Apparel said it has secured unanimous approval for its Chapter 11 reorganization plan. In a statement regarding Charney’s offer, a spokesperson said, “American Apparel evaluates all bids consistently. The company remains focused on pursuing the completion of its financial restructuring following its planned bankruptcy court hearing at the end of this month.” Approval for the company’s reorganization is scheduled to be heard in court on January 20. If American Apparel and the company’s creditors turn down Charney’s offer, he and the investor group (which filed a legal objection to the company’s reorganization plan last week) must convince the presiding judge to reject American Apparel’s plan.

In addition to Hagan Capital Group, Charney’s investor group includes Silver Creek Capital Partners and a third silent partner. PressPlay Group, the private equity arm of PressPlay Global (which is backed by Hagan and Silver Creek) would oversee the investment.

The investor group’s intention is to install Charney as co-CEO and surround him with veteran apparel executives and former employees. Hagan told Bloomberg Business that if the group’s offer falls short, it would consider partnering with Charney on an apparel startup. In a statement, Charney said, “I am confident that given the opportunity I will successfully turn around the company's fortunes, return it to profitability and to a market leading position again."

Charney was first suspended as CEO in June 2014 and was officially fired the following December for alleged misconduct and violations of company policy. Charney sued the company and made no secret of his interest in returning to the company he originally started.

American Apparel filed for Chapter 11 bankruptcy in October. Under its restructuring plan, bondholders would convert some $200 million in bonds into equity and would take the company private under its participating lenders, led by Monarch Alternative Capital. The new financing originally would cut American Apparel’s debt to $120 million from $311 million. Unsecured creditors were originally supposed to share $1 million, but that amount was increased recently to $2.5 million, the LA Times reports.

According to the most recent estimates provided to the Securities and Exchange Commission, the company had experienced a 15.5% decline in net sales in the first nine months of 2015, with net losses of $64.5 million. It has closed a number of retail stores, including its first U.S. location in Los Angeles.

On the wholesale side, American Apparel ranked as the 14th largest supplier according to Counselor’s State of the Industry issue, with nearly 20% growth in promotional products revenue over the last five years.