The investor group bidding for American Apparel Inc. is composed of three family offices that control a combined $2.4 billion and share a similar conviction: that the retailer’s ousted founder was wronged.
The coalition announced a $300 million bid for American Apparel on Monday, arguing that the bankrupt clothing chain would be better off if it brought back its former chief executive officer, Dov Charney. They see the allegations that got Charney fired from the company in 2014 as trumped-up and are willing to overlook his controversial past because he’s vital to turning around the business.
“Dov is a manufacturing and fashion maven,” said Chad Hagan, managing partner of one of the investors, Hagan Capital Group. “Any financier looking for a great opportunity would look to back him.”
Hagan Capital, located in the Atlanta area, is leading the takeover effort, with help from Greenwich, Connecticut-based Silver Creek Capital Partners. The third family office is a silent partner, Hagan said. The group’s initial bid, which was first reported by Bloomberg last week, was valued at more than $200 million. That offer has now been sweetened to $300 million, according to a statement on Monday from Charney and the investors.
“We are willing to be friendly and genteel, but the fact is we want this company and we want Dov back in,” Hagan said in an interview. “We are deadly serious.”
Charney, 46, founded American Apparel in 1998 and built it into a brand known for domestic manufacturing and edgy advertising. But he was dogged by allegations about his behavior at the Los Angeles-based chain. When the board fired him in 2014, it accused him of misusing corporate funds and violating the sexual-harassment policy.
His new backers say that the company’s performance deteriorated because Charney was forced out. About 10 months after his dismissal, American Apparel filed for bankruptcy. It negotiated a prearranged exit plan that would hand ownership to bondholders, led by Monarch Alternative Capital.
American Apparel’s current management is pushing ahead with its prearranged bankruptcy plan. The company said on Monday that it has unanimous approval of all voting classes to accept that transaction. The plan also includes a commitment for $40 million more in capital, backed by a credit line.
“American Apparel evaluates all bids consistently, and in the ordinary course,” the retailer said. “The company remains focused on pursuing the completion of its financial restructuring following its planned bankruptcy court hearing at the end of this month.”
If the company and creditors refuse the proposal from Charney’s backers, the investors would need to persuade the bankruptcy judge to reject the current reorganization plan, which is likely to reach him for a final decision on Jan. 20. Monarch declined to comment.
The acquisition attempt is being managed by a private equity joint venture run by Hagan Capital and Silver Creek. Hagan Capital has invested in several bankrupt companies, mostly in the health-care industry, Hagan said. The offer for American Apparel would be one of its biggest deals to date.
The investor group’s idea is to realize the brand’s untapped potential by continuing to make clothes in the U.S. and using that cachet to expand into more markets and distribution channels, Hagan said. Charney has crafted a business plan as part of the proposal.
While the investors see Charney as key to the takeover bid, they do plan to surround him with veteran executives -- both former employees and outsiders. One person they are in talks with is the current head of U.S. operations for a global retailer, Hagan said.
The investors also have hired Martin Bienenstock, a well- known bankruptcy attorney for Proskauer Rose, to represent them. He’s worked on high-profile cases such as General Motors and Enron Corp.
Hagan Capital is so set on backing Charney that if it fails to buy the clothing chain out of bankruptcy, it would consider funding an apparel startup with him. The firm also would wait to see how the turnaround unfolds at American Apparel and possibly pursue another bid.
“It’s a multiyear plan,” Hagan said.
Charney has puhed for his return since the board suspended him in June of 2014 for alleged misconduct, including retaliating against a former employee who sued him for sexual harassment. He previously struck a deal with hedge fund Standard General, only to have a falling-out with that firm. He also worked with Irving Place Capital on a bid proposal, though that also stalled. He then waged battle in the courts with lawsuits brought by him and former employees.
As bankruptcy court proceedings cruised along, Charney was running out of time to find a financial backer. He put out a press release on Dec. 4 that said he was working with a small investment bank on a possible bid. Soon after, Hagan Capital contacted Charney. It sent a letter of interest within days to tell the company it was considering an offer. The formal bid with committed financing came about three weeks later.
Charney took another key step last week when he filed an objection to the current reorganization plan.
“We aren’t going away,” Hagan said.
with assistance from Steven Church
©2016 Bloomberg News