American Apparel Inc (APP) Post Dov: Brand Value?

A lot of this is just noise. American Apparel Inc (NYSEMKT:APP) ex CEO Charney was fired for a host of legitimate reasons. Much of the reasoning in the letter from the attorney (linked below) tends to be more of a “this stuff was out there for a while so you should not fired him for it now” reasoning which I don’t get. The company was at the time going through a very transitional period and getting rid of the founder/CEO in the middle of it would not have made any sense at all. The fact is he did it. They also claim some timing technicalities which to me is simply a bargaining chip for a better severance.

The investment bank hiring is also interesting as it is not a big name firm.  That may be more of a function of American Apparel Inc (NYSEMKT:APP) being only a $100M company than anything else.  I continue to believe the brand itself has tremendous value and that there will plenty of interested buyers. Now the question is….what price?

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Honestly it is impossible to tell.  Much of the value here is clearly in the brand and the potential for an acquirer to run with it as the financials are only now beginning to recovery.  That does lead to a scenario in which there is a huge variance in perceived value between buyers and sellers. Do not be at all surprised if this exercise does not results in a sale.

I’m leaning to the opinion that simply refinancing the debt down to reasonable rates could cut interest expense in half (~$14M). Couple that with what I think will be a very attractive CEO candidate pool and I think longer term, the most value for us shareholder is not in a sale scenario.  If we do get an offer, we have to weigh that offer now vs the potential value longer term all of which is up in the air given recent events (dov firing, bank hired, ceo search) and what is to unfold.

Without putting hard numbers on it (longtime readers know my opinion on “price targets”) I think the end value here should be several times our purchase price.

American Apparel CEO give two choices

The news from Fri/Sat

From the WSJ

When Dov Charney arrived at a regularly scheduled American Apparel Inc (NYSEMKT:APP) board meeting Wednesday, he was given two options: Resign immediately as chairman, president and chief executive of the company he founded, or the board would fire him with cause, according to people familiar with the situation.

If Mr. Charney chose the first option, he would be retained by the company as a consultant for a four-year term at a fee of $1 million a year and paid a multimillion-dollar severance package, according to these people. A shocked Mr. Charney refused to resign and, after a 10-hour meeting, the board stripped him of his chairman’s title, these people say. The board  as president and CEO after the expiration of a 30-day period for resolving conflicts that is stipulated in his contract.

 was a continuing investigation, opened in March, that found Mr. Charney, 45 years old, allegedly booked airline flights for his parents using company money, stayed in corporate apartments when he wasn’t on business, helped arrange the release of naked photographs of a former employee who was suing him and lied on a deposition, among other matters, according to the people. Some of American Apparel’s allegations were earlier reported by Reuters.

Mr. Charney has called the allegations baseless, according to a  by his lawyer, Patricia Glaser, of Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP, to the law firm of Jones Day, the board’s counsel.

Ms. Glaser said the notice of termination that the board presented Mr. Charney with contained false and misleading information, both with respect to his job performance and the purported investigation.

“We question the legitimacy and thoroughness of any investigation that did not involve any discussion whatsoever with Mr. Charney,” Ms. Glaser wrote in her letter, which was reviewed by The Wall Street Journal.

Mr. Charney has a 27% stake and no plans to sell it, according to a person familiar with his thinking.

This person said he believed the use of the apartments was in keeping with normal business practices and that booking travel for his parents didn’t constitute grounds for firing under his employment contract. This person said the publication of the photographs of the employee who is suing him, Irene Morales, was done with the approval of other company officials and that Mr. Charney isn’t aware he lied on any deposition.

Ms. Morales couldn’t be reached for comment. An American Apparel representative declined to comment. Representatives for Glaser Weil and Jones Day didn’t immediately respond to requests for comment.

America Apparel CEO’s deadline for making his final decision

At Wednesday’s board meeting, which started at noon, directors gave Mr. Charney until 4:30 p.m. to make his decision, a deadline that was later extended until 9 p.m., according to Ms. Glaser’s letter.

“By presenting Mr. Charney with this absurd and unreasonable demand, the Company acted in a manner that was not merely unconscionable but illegal,” Ms. Glaser wrote.

The board had determined Mr. Charney had to be removed from the day-to-day running of the company because some board members thought he had inappropriately responded to harassment cases that had been filed against him, one of the people said.

Mr. Charney has been known for years as a controversial CEO who talks openly about his sex life, embraces sexuality as a tool for selling clothes, has walked around factory floors in his underwear and has staged explicit photo shoots in the basement of his mansion. He has been the subject of multiple lawsuits, including five that were detailed in a recent securities filing. Neither he nor the company has acknowledged wrongdoing, and the company called some of the lawsuits “fraudulent and malicious.”

Mr. Charney founded American Apparel as a wholesale T-shirt business in 1998. His business contrasts with much of the industry for a decision to produce garments in America, and he has been an outspoken advocate of immigration reform and higher wages.

American Apparel warned in a news release that the firing of Mr. Charney could have financial consequences. Lion Capital LLP, one of its lenders, has the right to call back its loan if there is a CEO change, one of the people said. American Apparel Inc (NYSEMKT:APP) has been talking to Peter J. Solomon Co., a boutique investment bank, about providing new financial options for the company, this person continued.

A Lion spokeswoman declined to comment. A Peter J. Solomon representative declined to comment.

This morning, Charney filed a 13D/A (his ownership in unchanged ar 27.2%):

Item 4.                                 Purpose of Transaction.

Item 4 is hereby amended and supplemented as follows.

On June 18, 2014, the Board of the Issuer notified Dov Charney of the Board’s intent to terminate his employment as the Company’s President and Chief Executive Officer, for cause under Mr. Charney’s employment agreement following a 30-day cure period required under the terms of his employment agreement.  Mr. Charney believes that such termination is without merit and intends to contest it vigorously.  Effective immediately, the Board suspended Mr. Charney pending the expiration of such cure period.  The Board has notified Mr. Charney that it intends to request his resignation from the Board concurrently with the effective time of his termination of employment.  The Board also removed Mr. Charney as Chairman of the Board effective immediately.

Following the announcement on June 18, 2014, made by the Issuer of its intent to terminate Mr. Charney’s employment, Mr. Charney was approached by certain persons (the “Supporters”), including stockholders of the Issuer, who expressed support for his continued leadership of the Issuer.  On June 19, 2014, Mr. Charney began to discuss with the Supporters potential changes to the composition of the Board and management of the Issuer.

As a result of Mr. Charney’s discussions with the Supporters described above, Mr. Charney and the Supporters may be deemed to constitute a “group” under Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Neither the filing of this Schedule 13D nor any of its contents shall be deemed to constitute an admission that Mr. Charney is a member of a group with the Supporters for purposes of Section 13(d) of the Exchange Act or for any other purpose, and such membership is expressly disclaimed.  In addition, neither the filing of this Schedule 13D nor any of its contents shall be deemed to constitute an admission that Mr. Charney is the beneficial owner of any Common Stock beneficially owned by the Supporters for purposes of Section 13(d) of the Exchange Act or for any other purpose, and such beneficial ownership is expressly disclaimed.

Mr. Charney intends to engage in discussions with the Issuer and Issuer’s management and the Board, other stockholders of the Issuer and other persons that may relate to the afore mentioned matters and/or other matters related to governance and board composition, management, operations, business, assets, capitalization, financial condition, strategic plans and the future of the Issuer.  Mr. Charney may also take one or more of the actions described in subsections (a) through (j) of Item 4 of Schedule 13D, and may discuss such actions with the Issuer and the Board, other stockholders of the Issuer and other persons.

American Apparel’s press release

The company just released:

LOS ANGELES–(BUSINESS WIRE)– American Apparel Inc (NYSEMKT:APP) today announced the hiring of advisory firm Peter J. Solomon Company.

“We believe the hiring of a financial and strategic advisor at this important juncture is in the best interest of our stockholders and will help maximize long-term shareholder value,” said John Luttrell, Interim Chief Executive Officer and Chief Financial Officer. “Although the company currently is on track to meet its previously disclosed 2014 EBITDA, we are pleased to be working with Peter J. Solomon to ensure that we have adequate access to capital in the future at a reasonable cost.”

Peter J. Solomon Company is a 25-year-old investment banking advisory firm that concentrates on mergers, acquisitions, divestitures, recapitalizations, restructurings and fairness opinions.

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