This is the second confirmed bidder now in the ring for the ailing Los Angeles T-shirt firm after Gildan Activewear Inc.’s initial bid of $66 million, announced with the company’s bankruptcy filing last month. The deal makes Gildan the stalking-horse bidder in the company’s bankruptcy auction. Color Image Apparel Inc. — owner of Alo Yoga, maker of the trendy yoga pieces seen on the likes of Gigi Hadid and Kendall Jenner, along with the Bella Luxx and Bella + Canvas brands — could prove a serious match against Gildan if it can find a partner to go in on a bid that would also include the retail assets.
Michael Malter of the law firm Binder & Malter LLP represents Color Image and said his client’s bid runs “apples-to-apples with Gildan, so there would not appear to be any sort of partnership [potential],” although one shouldn’t be ruled out as Malter said his client would consider it, but has not yet reached out to Gildan.
The potential deal struck between American Apparel and Gildan includes only the American Apparel intellectual property and other assets, but excludes the U.S. retail store base. It’s unclear whether Gildan would assume some or all of the company’s manufacturing facilities, on which some 3,457 jobs now hang in the balance.
Color Image is primarily interested in the manufacturing side of the equation, of which there is equipment in facilities in Garden Grove, South Gate and downtown Los Angeles, along with a La Mirada distribution center. That would certainly add to Color Image’s sizable presence in Los Angeles, which cofounder Danny Harris told WWD in April counted a worker base of about 800 people. Alo Yoga made its move into company-owned retail with a 7,000-square-foot store in Beverly Hills in the spring with Harris adding plans called for more for the fast-growing label.
It was only more recently that discussions around partnerships of bidders for the American Apparel auction were opened, implying a very real possibility of significantly more buyers coming to the table.
“We had assumed, and this is very typical, that there would be two or three bidders at the end of the day — real bidders at the auction,” Malter said. “But as to how many are circling Houlihan, I don’t know.”
American Apparel earlier this year hired investment bank Houlihan Lokey to shop the company to potential buyers. Counsel for bondholder Standard General raised concern during a hearing in Delaware bankruptcy court Friday about the possibility of an auction bearing out in real additional interest given how long the company had been up for sale, and cited losses of $1 million to $2 million for every week the business remains in operation.
The judge overseeing the case on Friday approved the timetable for the company’s auction, which is scheduled for Jan. 9 with a closing expected Feb. 15.
Color Image only about a week ago began warming back up to the idea of going after American Apparel. It had been eyeing the firm in the summer, but was unable to conduct due diligence due to negotiations breaking down, Malter said.
It’s unclear how many companies have a real interest in the business. Authentic Brands Group, Iconix Brand Group Inc., Hanes and B. Riley & Co. are all names that were thrown in the mix ahead of the bankruptcy filing. Founder and former ceo Dov Charney had been interested in the firm as recently as January, but appears to be more focused on growing his start-up, the Los Angeles Apparel company.
“What’s unusual is the creditors committee and the debtor [American Apparel], all of the parties in the case are encouraging possible bidders to marry and so teaming up with another bidder who is interested in retail is a possibility,” Malter said.
He added such a move is especially rare, although it would certainly serve American Apparel well by yielding a potentially greater return.
“Usually, there’s great sensitivity to prospective bidders working out deals between themselves because that could suppress the price,” Malter said. “Here, because there are different aspects of the business in a mix and match, potential bidders in fact talking to each other is encouraged.”
It’s part of the changing face of retail bankruptcies, added Binder & Malter partner Robert Harris, who represents Color Image with Malter.
“While combinations of bidders have been infrequent in the past, we have seen cases such as Aéropostale and Sports Authority in which an operator and a liquidator — or even a group of lessors holding many leases — will team up to generate a higher overall proposal than any one bidder,” Harris said.
He added of the current climate surrounding retail bankruptcy auctions: “It’s Match.com meets bankruptcy.”