American Apparel, Inc. (APP): Standard General 13D

This goes into more detail but backs what I’ve been saying for the last week. Standard has the resources to save American Apparel Inc (NYSEMKT:APP) and intends to use them to do so. Again, this isn’t due to any mystical prognosticating ability on my part, it is simply understanding incentives.  Standard has every incentive to make sure whatever happens here, the equity retains and increases in value.

Charney is simply a spectator at this point and I think Standard all but signaled his departure from anything other than a non-management “advisory” role by what they said in the 1st bolded paragraph. I’m not sure Charney can make the case he fits that mold given the video of him dancing naked in front of female employees.  At this point I think he is just watching out for the value of his shares or trying to “walk” away with some reputation in tact for a second act.

Warren Buffett: If You Own A Good Business, Keep It

Berkshire Hathaway Warren BuffettBuying private businesses is easier than acquiring public firms, and investors should avoid selling good investments at all costs, according to the Oracle of Omaha, Warren Buffett. Q2 2020 hedge fund letters, conferences and more In an interview with CNBC in March 2013, Buffett was asked if he was looking at any businesses, in particular, Read More


American Apparel: Standard General’s 13D/A filing

From the 13D/A Filing:

American Apparel – Standard General: The Letter Agreement

On June 25, 2014 Standard General, on behalf of one or more of the funds for which it serves as investment manager (collectively, “SG”), entered into a letter agreement (the “Letter Agreement”) with American Apparel Inc (NYSEMKT:APP)’s Mr. Charney. The Letter Agreement states that SG intends to purchase Common Stock of the Issuer.  If SG, in its sole discretion, is able to purchase at least 10% of the outstanding shares of Common Stock of the Issuer (the “Condition Precedent”) then SG will loan Mr. Charney an amount equal to the SG Price (as defined below) times the number of shares purchased by SG.  The number of shares and the SG Price shall be determined upon completion of SG’s purchases, and SG shall notify Mr. Charney upon completion of the purchases.  Mr. Charney will use the proceeds of such loan to purchase such Common Stock from SG for the lowest price paid by SG for such common stock after the first purchase.  Mr. Charney will enter into definitive loan documents which will provide for the following:

(i) The loan will bear interest at 10% per annum, which will be payable in kind.
(ii) The loan will  mature on July 15, 2019, but may be prepaid without penalty.
(iii) The proceeds of the loan will be used solely to acquire the shares from SG.
(iv) The loan will be collateralized by the Common Stock purchased by Mr. Charney from SG and Mr. Charney’s other shares of Common Stock.
(v) Mr. Charney and SG will enter into warrant agreements granting SG a right to purchase (a) the shares sold to him by SG, and (b) 4,720,941 shares.  The price to be paid for such shares pursuant to such warrant agreements will be the SG Price.
(vi) Mr. Charney will not be able to vote the Original Shares or the Additional Shares (each as defined in the Letter Agreement) purchased from SG without SG’s consent other than pursuant to the Investment Voting Agreement dated March 13, 2009 between Mr. Charney and Lion Capital (Guernsey) II Limited.  Mr. Charney also retains the right to vote the Original Shares in favor of his election to the Board, however, he has agreed not to seek a Board seat.

The Condition Precedent has been satisfied and transactions contemplated by the Letter Agreement with respect to the transfer of shares and the related loan and grant of security interest took effect on June 27, 2014.

As a result of the Letter Agreement and the transactions effected thereunder, the Reporting Persons and Mr. Charney have formed a “group” within the meaning of Rule 13d-5(b)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Each of the Reporting Persons disclaims beneficial ownership of securities of the Issuer beneficially owned by the other Reporting Persons and Mr. Charney, except to the extent of any pecuniary interest that such Reporting Person may have with respect thereto.

American Apparel: Purpose of the Transaction

The Reporting Persons believe that the Issuer is a great company that is beset with difficult corporate governance issues and a fragile capital structure.  We have established a voting agreement to control the founder’s shares and give us the opportunity to resolve this situation and restore the Issuer to health.  Furthermore, we have opened a constructive, detailed and substantive dialogue with members of the current board of the Issuer so that we can find common grounds for an amicable and expeditious resolution.

Absent a consensual agreement with the Issuer, our plan is to bring before the Issuer’s stockholders a highly qualified slate of independent directors that will bring the requisite expertise in retail turnaround as well as institutional credibility.

The Reporting Persons expect the reconstituted board to be able to quickly identify and empower a strong management team that will allow the Issuer to fulfill its full potential. The Reporting Persons expect that the reconstituted board will also repair any corporate governance deficiencies and uphold best corporate practices.  Strong corporate governance enables trust between a corporation and its stockholders.  The current corporate governance difficulties of the Issuer undermine the Issuer’s operation and financial stability.

The Reporting Persons will only support initiatives that comply with the highest standards of governance, ethics, and corporate citizenship. We commend the actions of the existing board of directors to investigate any inkling of malfeasance, and we are committed to allowing this investigation to run its course. The founder has agreed that he will not serve on the board nor play any leadership role in the company until the process is complete, and he will serve no role if he is deemed unfit.

American Apparel: Reporting Persons structured investment

The Reporting Persons have structured this investment to gain control over the shares owned by the founder of American Apparel Inc (NYSEMKT:APP). This transaction is not about the founder, nor is it an endorsement of him. He is the largest shareholder, and the voting agreement allows us to control his block of shares, and the loan mechanism provides us with the additional protection of a collateral interest in all of his shares. He can no longer vote his shares without our consent.

Currently, the Issuer is threatened by defaults in various parts of its debt structure, that if not addressed in the near term, may result in a bankruptcy, and possibly, a liquidation of the company. The Reporting Persons believe that this would be an unfortunate outcome for a company with over 10,000 employees earning in excess of a living wage with subsidized, affordable health insurance and a socially conscious mission to manufacture in the USA.  The Reporting Persons are prepared to lend their credibility and capital resources to prevent this avoidable outcome in what the Reporting Persons believe is otherwise a healthy business.

American Apparel: Discussions with the Issuer

As discussed above, the Reporting Persons have opened a constructive, detailed and substantive dialogue with members of the current board of the Issuer with a view to finding common ground for an amicable and expeditious resolution.  No agreement has yet been reached and there can be no assurance that any such agreement will reached.

The Reporting Persons have engaged in and intend to continue to engage in discussions with the board and members of the Issuer’s management team concerning the composition of the board, capital structure, governance, management, strategy and other matters concerning the Issuer.

The Reporting Persons also may consider, formulate, discuss and seek to cause the Issuer to implement various plans or proposals intended to enhance the value of their current or future investment in the Issuer, enhance stockholder value or enhance the value of the Issuer’s assets, including plans or proposals that may involve extraordinary matters relating to the Issuer.  Any such action may be taken or advocated by the Reporting Persons alone or in conjunction with other shareholders, potential acquirers, financing sources and/or other third parties, and could include one or more purposes, plans or proposals that relate to or would result in any of the transactions, matters or effects enumerated in Items 4(a) through (j) of Schedule 13D.

The Reporting Persons intend to evaluate various alternatives that are or may become available with respect to the Issuer and its securities.  In addition to matters addressed by the Letter Agreement, the Reporting Persons may from time to time acquire additional equity or debt securities or other instruments of the Issuer or dispose of such equity or debt securities or other instruments in any amount that the Reporting Persons may determine in their sole discretion, through open market transactions, privately negotiated transactions or otherwise.

American Apparel’s agreement with Reporting Persons

From time to time, the Reporting Persons may (i) enter into derivative securities transactions or other hedging arrangements with respect to securities held for their accounts, (ii) hold shares of Common Stock in margin accounts or lend portfolio securities to brokers, banks or other financial institutions, or (iii) take other actions with respect to securities of the Issuer.   Loans of portfolio securities typically would obligate the borrower to return the securities, or an equal amount of securities of the same class, to the lender and may provide that the borrower is entitled to exercise voting rights and retain dividends during the term of the loan.  From time to time, to the extent permitted by applicable law, the Reporting Persons may borrow securities, including shares of Common Stock, for the purpose of effecting, and may effect, short sale transactions, and may purchase securities for the purpose of closing out short sale positions in such securities.

The information set forth in this Item 4 is subject to change, and there can be no assurances that the discussions or activities described in this Item 4 will continue or occur or that any of the Reporting Persons will or will not take, or cause to be taken, any of the actions described above or any similar actions.

American Apparel, Inc. (APP): Standard General 13D via ValuePlays