It's not the complete fresh start one of its biggest shareholders was looking for, but American Apparel (NYSEMKT: APP) got a board of directors overhaul last week, one which doesn't include the company's founder and currently suspended CEO, Dov Charney.
While this could be the beginning of the quirky retailer's resurrection that will see it free of its controversial chief executive at last, it calls into question why we had to go through all the drama in the first place as it seems a lot of this could have been achieved without all the turmoil.
In a filing with the SEC last week, American Apparel said four new board members were appointed, including the current CEO of RadioShack, Joe Magnacca. That may seem a curious choice considering the electronics retailer itself is arguably facing an even bleaker future than the clothing company, but RadioShack's troubles predate the executive taking the helm, and he is seen as having had successful stints at Duane Reade and Walgreen.
The new members were anticipated, though, after hedge fund Standard General had banded together with Charney to wrest control of the company. Following his sudden ouster from the company in mid-June, just after the retailer's annual shareholder meeting, Charney used his ability to acquire shares without feeling the effects of dilution to grab hold of a 43% stake in American Apparel and turn his voting rights over to Standard General.
As part of the agreement which the hedge fund subsequently reached with the retailer, while Charney was to remain out as CEO (but retaining his position on the board), he'd still be hanging around as a creative force; although, his ultimate future with the company remained up in the air. Yet it also believed a new board of directors was needed and on July 9, five of the company's seven members, including Charney, tendered their resignation. Two of the members; however, would remain with the board and serve as its co-chairmen.
That led to last week's filing where it was announced that in addition to Magnacca, Standard General was appointing one of its partners, David Glazek, to the board, along with turnaround expert Thomas J. Sullivan and Colleen B. Brown, who was chosen because she has broad board service experience. A fifth member is still to be decided.
It seems more unlikely that Charney will be part of the new company, which he admitted at the time he turned over his rights to Standard General was a distinct possibility. The hedge fund has been noncommittal about what, if any, role Charney would have in the new American Apparel, and last week's filing affirmed that as part of its agreement with him he would not be a director at the company.
So what was Charney's end game here? The effect of all the sound and fury generated by his machinations will very likely end up the same had he just gone quietly into the night following his termination. Sure, he's exacted some measure of revenge upon those who fired him, and while American Apparel is no longer under the yoke of the $10 million loan it had from Lion Capital -- which as part of the terms of the loan, was required to vote in favor of Charney's election to the board -- it's now indebted to Standard General, which holds most of the cards to the retailer.
And its choices haven't set well with all shareholders. Shareholder Bigger Capital blasted the decision to keep on two of the board members that presided over Charney's ouster, claiming they were every bit a part of the retailer's problems as were the five that were forced to give up their position.
If the result of all this turmoil is that it has a new board beholden to the hedge fund, it could very well give the impression that American Apparel is still not a company worth investing in as it does not have the interests of common shareholders at heart. It may be that all the trouble it's gone through has ultimately been for nothing.
