Following in the footsteps of Jamba Juice
American Apparel offers a number of basic items such as T-shirts, underwear, and sweats that can be found in its 143 retail stores in 11 countries, including the U.S. As a consumer with a few of the company's products in his home, I can attest to routinely being able to find the company's products at a discount on Amazon.com
American Apparel and Endeavor Acquisition
Those are the basics of the deal, but there is one unusual provision in the offer from Endeavor that requires American Apparel CEO, Dov Charney, to purchase the interests of another American Apparel owner for $60 million. Failure by Mr. Charney to do so means he will lose 7.7 million of the 32.26 million shares coming to him and that Endeavor will instead purchase the other owner's interest for $60 million. This second scenario means that American Apparel will have $60 million less available to it for expansion and balance sheet stability. A final provision to the deal requires that Mr. Charney hold his shares for no less than three years.
For such a well-known company and brand, this is an unusual route for the company to take. But it's not the first unconventional move for American Apparel. Like Abercrombie & Fitch
Whether or not the company succeeds in the long term is another issue altogether and may or may not have anything to do with the noise surrounding the company. Ultimately, the company sells very basic products at a premium price by offering better quality (or at least the perception of better quality) and clever marketing. This is necessary, because the company's use of more expensive American labor means it will not be the lowest cost producer. Although this is a clever business model, the apparel business is brutally competitive and the model can be replicated.
As with most IPOs, conventional or not, this IPO is primarily a financing event and one that should help American Apparel with its large debt position. For that reason and the fact that apparel retailing is brutally competitive, investors are better off taking some time to wait and read the full financials and required disclosures that the combined company will file over the next year before making any investing decisions. There are easier ways to make some money in the meantime.
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