This week's twists and turns have brought some temporary resolution to American Apparel's precarious state of affairs from an unlikely source, namely a #25 million deal with Standard General, the hedge fund that initially appeared to be backing disgraced and ousted founder Dov Charney (pictured right) in his efforts to regain control of the company. It turns out that Standard General has been cannier than it first appeared, while Charney has not helped his cause by appearing to violate the terms of his suspension by making an impromptu visit to a Lower East Side branch of the chain earlier this week.
Standard General has been buying American Apparel stock recently in a plan that appeared to have it lending Charney the money to purchase it and presumably increase his stake in the company and regain control. It's not that simple. It turns out that their combined total is 44% of the company's stock, but under a new standstill agreement that halts any further purchasing of stock by the hedge fund, Charney is not allowed to vote those shares without Standard general's consent. In addition, the Hedge fund has agreed with current management to give the retailer $25 million to repay loans that triggered defaults upon the removal of Charney as CEO. This leaves Standard General with a great deal of influence in the company but under the agreement which lasts until the 2015 Stockholders' Meeting, it will limit its votes to no more than one third of the company's shares on any issue subject to stockholders' votes. What it will get for its investment is a reconstituted board that will still include current cochairmen Allan Mayer and David Danziger. As for Charney, who is still in arbitration over his dismissal, he will now hold the temporary title of strategic consultant pending the outcome of the continuing internal investigation over his alleged misconduct. That investigation will now be overseen by an independent board committee that will include cochairman Danziger, one Standard General designee and one joint designee yet to be named. Charney's ultimate role in the company, if any, will determined based on the results of the investigation.
So there. That's a lot to digest, but the take-away is that the chain is now financially stable for the time being, and its current management can now focus their energies on correcting the merchandising and operational problems that have sent American Apparel into a downward spiral over the past few years without Charney's interference. Other suitors, eager attracted by the prospects of molding a new American Apparel without having to deal with Charney have now been held at bay for the time being and maybe, American Apparel will become a cool place to shop again.