American Apparel

Defaults are technical things. For instance, Argentina is technically in default right now, but nobody really cares just yet, because it has 30 days to figure things out before it is in the kind of default that actually matters.

So it is with American Apparel: When private-equity fund Lion Capital agreed to loan the t-shirt retailer $10 million at a bad credit-card rate, it did so on the understanding that company founder Dov Charney would remain in charge no matter how much he allegedly let things slide financially or how many employees he allegedly sexually harassed. So it was understandably perturbed when American Apparel fired Charney last month. Read more »

The recently deposed American Apparel founder is hoping to regain control with the help of his fellow shareholders. Read more »

As American Apparel executives scrambled to pay vendors this spring, they frequently ran into a frustrating problem: Where were the checks? Many times, the answer was Chief Executive Dov Charney’s Los Angeles mansion. Starting early this year, Mr. Charney began signing all of the company’s checks—hundreds of them every month—one of several bottlenecks that plagued the fashion chain as its finances withered, people familiar with the situation said. Mr. Charney’s sexual antics have commanded the headlines, but beneath the salacious details was a business that had fallen into almost complete disarray, the people said. American Apparel, a major retailer with 10,000 employees and 249 stores, lacked seasoned executives, which often required Mr. Charney to dive in to fix problems. The general counsel was personally managing the company’s fleet of stores. This spring, the legal department was reduced to two people. And Mr. Charney was swimming in checks. They were delivered by assistants to his office or home, where they would pile up for weeks before resurfacing in the accounts-payable department, the people familiar with the matter said. Mr. Charney purposely held the checks while he investigated whether the amounts were correct, said a person familiar with his thinking. [WSJ]

  • 22 Apr 2008 at 2:15 PM

Why Isn’t American Apparel Beset By Activists?

In July of 2005, “Endeavor Acquisition Corporation (A Development Stage Enterprise) was formed in Delaware. Just before Christmas 2005, the company raised around $130 million in a “blank check” IPO, as a “Special Purpose Acquisition Company,” effectively a promise to go buy something worth owning, eventually.
The thing about SPACs is that they don’t generally start with an investment in mind, and they have particular restrictions on how long they can spend looking. In some cases, management must pay the fees paid out by the SPAC if it liquidates. This can get pricey. Think $1 million and above. In this case, Endeavor had 18 months from the “consummation” of the IPO to sign a letter of intent. After that, it was required to liquidate.
Said the firms filings:

Our efforts in identifying a prospective target business will not be limited to a particular industry, although we intend to focus on service businesses in one of the following segments:
• business services;
• marketing services;
• consumer services;
• health care services; and
• distribution services.

They had about 6 months left when they filed an 8-K announcing their intention to acquire American Apparel, “a leading provider of cotton leisure wear geared toward contemporary metropolitan adults and sold through company-owned retail locations and online,” which I suppose might have been termed a “distribution service company,” after a long night in Tijuana.

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