American Apparel's Next Step Is Likely The Courthouse
NEW YORK ( TheStreet) -Ousted American Apparel
Shares were sinking 5.3% to 85 cents on Tuesday as the boardroom saga at the T-shirt and basics retailer took another right turn.
According to a new Securities and Exchange Commission filing , Charney owns 74.5 million shares, or 43% of American Apparel's outstanding stock, as of June 27. Charney, who previously owned approximately 27%, was able to amass a more significant stake through a partnership with Standard General , a New York-based hedge fund.
Charney disclosed in an SEC filing last week that he had entered into a partnership with Standard General in which the firm would acquire at least 10% of shares of American Apparel. Standard General would loan Charney the money to buy the shares from the firm. The loan terms include: an interest rate at "10% per annum;" a maturity date of July 15, 2019; and that Charney and Standard General "will agree to vote their shares only as agreed between them," the filing said.
American Apparel retaliated on Saturday, adopting a one-year shareholder rights plan, or so-called poison pill , that is triggered if any one shareholder attempts to purchase more than 15% of the company's shares. Additionally, if any shareholder that already owns more than 15% of the stock, i.e. Charney, acquires an additional 1% of stock, the pill is triggered as well. Poison pills dilute voting rights and are a backstop against hostile takeovers.
"The rights plan is designed to limit the ability of any person or group, including Dov Charney, to seize control of the company without appropriately compensating all American Apparel stockholders," American Apparel said in a press release.
According to Tuesday's filing, Charney was obligated to purchase the shares and claims to be beneficial owner of the shares. The total purchase price of the 27.4 million shares was $19.6 million. Charney also disclosed in the new filing he had sent a letter to the board calling for a special meeting of stockholders for Sept. 25 of this year. Charney is looking to amend the company's bylaws to boost the number of directors to 15, among other things.
Now that Charney essentially owns a 43% stake and is trying to get a majority vote, according to the New York Post , it would seem as if he is trying to take over the company.