Former American Apparel CEO, Dov Charney, has filed a bid for the company

Former American Apparel CEO, Dov Charney, has filed a bid for the company

Dov Charney, the ousted CEO of American Apparel, has joined forces with two private equity firms in a US$300m bid to buy back the retailer.  

The former chief executive, who was fired over alleged misconduct following a 2014 boardroom coup, has teamed up with Hagan Capital Group and Silver Creek Capital Partners to try and win back the now bankrupt US fashion group he founded. 

The terms of the proposal includes an investment from the investor group of $130m, including $90m of new equity and $40m in a new term loan. If accepted, it would allow American Apparel to exit bankruptcy with around $160m of liquidity and new equity, and Charney reinstated as CEO.

"American Apparel is a proven viable business model that needs to be scaled from a sales point of view and should not be in bankruptcy," said Chad Hagan, managing partner of Hagan Capital Group. "If the company is not turned around it will be a pointless loss of American manufacturing jobs. We strongly urge the creditors to evaluate and accept our offer."

The bid for American Apparel is the second from Charney after the company rejected an offer in December valuing the company at $200m.

In 2014, the US fashion retail group generated over $600m of net sales and reported $40m of adjusted EBITDA. However, its losses in the six months to the end of June more than doubled to $45.8m on sales of $259m.

Late last year, the group filed for bankruptcy but last week managed to secure a 90-day extension to its period for implementing its reorganisation plan. In a further move yesterday (11 January), the company won unanimous approval from its creditors to accept its reorganisation plan, a step forward that will enable the business to continue implementation of its current turnaround strategy under the existing leadership team.

The plan features a commitment for an additional $40m of capital, through an asset-based credit facility from a third party lender or the committee of lead lenders. 

CEO Paula Schneider, said: "We remain focused on executing our turnaround plan, and positioning American Apparel for the future by creating new and relevant products, launching new design and merchandising initiatives, growing our e-commerce business, and creating exciting and creative marketing campaigns to share the story of our progress."

Hagan said he believes removing Charney from the company's board and leadership was a "shortsighted mistake", adding: "We are seeing the results of this error unfold in the declining performance of the company today.

"The company's existing management team has had a year to prove its business strategies for American Apparel. The historical record on this is clear at this point: the company is a far less profitable business than it was under Mr Charney's tenure as chairman and CEO, and the company's sales and EBITDA only continue to deteriorate further under the new regime. We believe that under the strategy being pursued by current management, the debtor's plan, if confirmed by the court, will ultimately prove infeasible. This will result in disastrous outcomes for the company's various stakeholders."

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