American Apparel Saga Takes Yet Another Strange Turn

Source: Wikimedia Commons.

Just when it seemed the drama playing out at American Apparel (NYSEMKT: APP  ) was finally winding down and the quirky retailer could focus on turning its business around, a new wrinkle threatens to extend the upheaval further, calling into question whether the company can make it through to the other side.

Through a deal with its new hedge fund saviors, the retailer had agreed to replace all but two board members, while ousted founder and CEO Dov Charney would be kept around for the time being as a creative force, if not chief executive. That didn't sit well with another significant shareholder, which wants everyone replaced with a completely reconstituted board.

Bigger Capital fired off a letter to the retailer's board on Thursday saying that, like everyone else, it has sat perplexed through the turmoil brought about by the termination and subsequent resurrection of the company's CEO, and doesn't understand how board members David Danzinger and Allan Mayer get to remain as co-chairmen.

In the PE firm's view, those two individuals are at least as culpable in the calamity at the retailer as any of the other five board members. It called for their immediate resignation.

Bigger charged that Charney's escapades of alleged sexual harassment (some claims quietly settled) occurred on their watch. Charney was not punished, but in fact was rewarded last year with a maturity extension of an anti-dilution protection provision that entitled him to more than 20.4 million shares of company stock. Danzinger and Mayer were then part and parcel of what Bigger calls the board's recent "coup" that nearly financially ruined the company because Charney's ouster brought American Apparel into default on a $10 million loan from Lion Capital, which would have cascading effects on its other lines of credit with Capital One Financial.

Because they were part of the board that waited until it had been reelected by shareholders at the annual meeting in June immediately before terminating Charney, Bigger says they also failed in their fiduciary responsibilities to investors, who had a right to know about their plans before they cast their director votes. They withheld material information from shareholders that should have been included in proxy materials distributed prior to the meeting. According to the Bigger Capital letter: "Messrs. Danzinger and Mayer have made seemingly arbitrary decisions taking reckless risks with our capital and jeopardizing our business with little regard for shareholder interests or the future of our Company.  All seven current directors must be held accountable for this blatant disregard of shareholder rights and value."

The company's self-immolation caused investors including Five T Capital and 1832 Asset Management to either substantially scale back or completely sell their holdings in the retailer. Bigger Capital, however, is choosing to stay and fight against Danzinger and Mayer remaining on the board, calling them "directly responsible for the value erosion and reputational harm" to American Apparel.  

Last week's agreement to save American Apparel was really just the eye of the hurricane, and dissension is still simmering below the surface. With hedge fund Standard General providing a $25 million lifeline to the company with the understanding that those two directors remain, it's doubtful we'll see them leaving voluntarily, but it could mean there will be more capital flight from the retailer in the near future if they don't.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3036958, ~/Articles/ArticleHandler.aspx, 9/5/2015 8:46:49 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated 11 hours ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 4:01 PM
APP $0.18 Up +0.00 +0.56%
American Apparel CAPS Rating: *