American Apparel Agrees to $25M Cash from Shareholder, Charney to Return

Businessweek cover story this week on Dov Charney

Businessweek cover story this week on Dov Charney

Los Angeles—He’s back. Yes, Dov Charney the controversial and recently ousted chief executive at American Apparel, will return to the company as a consultant.

That’s part of the deal announced late Wednesday: financially strapped American Apparel made a deal with its largest shareholder, New York hedge fund Standard General, for a cash infusion of up to $25 million. The investment will pay off a $10 million loan from Lion Capital that the chain defaulted on by firing Charney.

Standard General, which controls nearly 44% stake in American Apparel, had previously joined forces with Charney in a cooperative buying arrangement about two weeks ago,

Charney evidently will stay on as a “a strategic consultant” until an investigation into alleged misconduct is concluded; based on the findings, a committee of board members will determine whether he can serve as “CEO or an officer or employee of American Apparel.”

As part of the deal, Standard General is upholding American Apparel’s commitment to making its merchandise in America. The investment firm will not support shifting even a percentage of U.S. manufacturing to low-cost countries overseas, according to a person familiar with the negotiations.

“The underlying brand is quite strong, the sales have been strong,” said David Glazek, a partner at Standard General, which invests money for pension funds and wealthy individuals. “But the series of crises, which in isolation looks one-off, sucked up both liquidity and management time. If you get a moderate period of stability, the business is going to do quite well.”

Standard General initially appeared to be behind Charney but Wednesday’s deal will ally Standard General even more closely with the troubled American Apparel, which employs 10,000 workers and operates about 260 stores worldwide.

 

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