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American Apparel to Stay True to Dov Charney’s Vision

Absent a sky-high offer, cochairman Allan Mayer said the brand would bring in a new ceo and push ahead with its familiar made-in-America approach.

Don’t expect the face that American Apparel Inc. shows to consumers to grow any tamer now that Dov Charney’s been ousted as president, chief executive officer and chairman.

“There is something at the core of the American Apparel brand that is slightly transgressive,” the newly appointed cochairman Allan Mayer told WWD Tuesday. “That is not to everybody’s taste — and sometimes it’s not to my personal taste — but it’s what the company is and we’re not going to change.”

What might well change is the company’s financial structure.

Mayer placed the firm’s debt at about $280 million, which he described as “embarrassing.” And the stock fell 21.4 percent Tuesday to 53 cents a share as investors worried over the impact of potential debt or equity offerings by the company. After the rout, the combined value of all of American Apparel’s stock stood at $91.7 million.

While he seeks to shore up the company’s finances, Mayer is walking a fine line. He’s embracing much of what Charney built. And at the same time, he’s explaining the founder’s abrupt dismissal last week for “alleged misconduct” following years of sexual harassment lawsuits and a clearly edgy, racy corporate environment.

“There was a pattern of behavior on his part that violated not only common decency, but certainly company policy and in a couple of cases skirted violating the law,” Mayer said, adding that this spring the rumors and stories about Charney coalesced into “substantiated, irrefutable facts.”

RELATED STORY: American Apparel’s Dov Charney Fighting Back >>

In his termination letter, which was hand-delivered at a 10-hour board meeting in Manhattan, the board told Charney: “You have willfully and continuously failed to substantially perform your job duties….You have engaged in willful misconduct that has materially injured the financial condition and business reputation of the company.”

The letter, which was first published by BuzzFeed and independently verified by WWD, alleged that Charney neglected his fiduciary obligations by not preventing an employee from “creating and maintaining false, defamatory and impersonating blog posts about former American Apparel employees.”

Charney’s termination letter also noted, “you presented significant severance packages to numerous former employees…to ensure that your misconduct vis-à-vis these employees would not subject you to personal liability.” The severance agreements were not board-approved.

In general, the board said Charney’s colorful approach to business had an impact on its balance sheet.

“The company has had a very difficult time raising capital and securing debt financing at reasonable rates because of your actions,” the board said in its letter. “Indeed, many financing sources have refused to become involved with American Apparel as long as you remain involved with the company.”

Charney, who declined to comment when reached Tuesday, is not taking any of this lying down.

His attorney, Patricia Glaser, filed a petition with the American Arbitration Association in Los Angeles Monday.

Mayer, a public relations executive and expert in crisis communications, who’s been a director at the firm since 2007, said the board is on solid ground.

“We’re looking forward to [arbitration],” he said. “We have ample facts to bolster our position and all we need to do is put them in front of an impartial arbitrator and we know we will prevail.”

Even so, Charney remains a potentially disruptive force for the company as he still controls 27.2 percent of its stock. A regulatory filing Monday — which marked the founder’s shift into activist investor — detailed how Charney had been contacted by shareholders who supported him and that he would seek to make changes at the firm.

That sets up a potential battle to buy the company.

But, absent a sky-high offer, Mayer said American Apparel would instead bring in a new ceo and push ahead with its familiar made-in-America approach.

“We’d be crazy to sell the company now,” the cochairman said. “It’s so undervalued. To sell it at a bargain price would be the ultimate disservice to shareholders. We’re not seeking a sale.”

What he said the board is seeking is some financial cushioning with the help of investment bank Peter J. Solomon Co.

“Their job is to create a plan so that, in the event we need to raise additional capital, it’s there waiting for us, which is a luxury we have not enjoyed for quite some time,” Mayer said. “The fact is — this is not why we’re firing Dov — but as a consequence of firing him, we have a lot more financial options than we did before. We have a lot more people who are willing to work on transactions with us at much more reasonable rates.”

Nevertheless, Mayer sought to give Charney his due.

“For all the issues we have with Dov, he obviously deserves enormous credit,” he said. “There would have been no American Apparel were it not for him — he’s a brilliant marketer; he’s indefatigable. It’s one of the things that made this so hard. He has devoted half his life to American Apparel 24/7.

“Dov’s departure is clearly a challenge,” Mayer continued. “I’d be a fool to dismiss it. But…there are 10,000 other people who work at American Apparel, and I think it’s a challenge that they’re more than up to.”