American Apparel LLC’s board of directors agreed Sunday to send the ailing company back into bankruptcy court after striking a deal to sell its intellectual property business to Gildan Activewear, Inc. for $66 million.
Chairman Bradley Scher notified employees of the news on Monday in a letter, which was obtained by WWD, the same day paperwork for the Chapter 11 was filed in U.S. Bankruptcy Court in Delaware.
Gildan, which is headquartered in Montreal, paid $110 million for Alstyle Apparel LLC in May, bringing the T-shirt and fleece manufacturer from Anaheim, Calif. into its fold and expanding its reach in the printables market.
Scher called the decision the best option “to preserve the legacy of the American Apparel brand,” with Gildan expected to maintain “certain of our manufacturing, distribution and warehouse operations in and around Los Angeles,” Scher said in his note to employees.
Gildan, like American Apparel, makes basics such as T-shirts, fleece, socks and underwear and has more than 42,000 employees globally, of which there are over 2,500 in the U.S.
Any deal would have to be approved by a judge now that the troubled company is once again seeking shelter in bankruptcy court. Gildan, if approved, would become the stalking horse bidder in an auction that could open the company up to other potential offers, including those interested in taking over American Apparel’s retail business.
“Although we have reached an agreement with Gildan, filing with the court allows us to hold an auction process, where other buyers who might propose a better deal than Gildan’s can submit competing offers, including for the retail business,” Scher said in his letter. “Ultimately, we will be able to get the best deal done, by requiring various other bidders to compete to buy our iconic, valuable brand.”
Scher said the sale process would take “some time to complete” and assured workers in his letter it would be business as usual in the U.S., where American Apparel has nearly 6,000 employees.
Despite the assurances, the company’s employees were warned last week in a letter from head of human resources Craig Simmons that a sale could lead to the likely closure of certain operations and potentially “scaling down operations” at its downtown Los Angeles headquarters.
The bankruptcy filing comes less than a year after the company emerged from its first filing and follows the abrupt departure of former ceo Paula Schneider, who left the firm in October.
Last week American Apparel’s U.K., Australian and Canadian businesses had either fallen into administration or bankruptcy after product shipments were stopped to those regions. That same week a judge ordered the company to make good on a $2.03 million payment to FTI Consulting as well as a $1.25 million payment to the unsecured creditors committee within 30 days, with the company’s liquidity issues and the specter of a second bankruptcy raised during the hearing on those matters.