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American Apparel, Is It Fit for a Buyer?

Stocks in this article: APP GPS URBN WTSL

NEW YORK (TheStreet) -- Is American Apparel (APP) now an acquisition target following the surprise termination of its founder, Chairman and CEO Dov Charney?

Given American Apparel's strong niche brand that resonates with consumers, it could be one option for a company that has been mired in problems, primarily stemming from Charney himself and his inability to manage the growing company as well as multiple lawsuits against him alleging sexual harassment in the office.

"If a buyer can somehow restructure the debt -- and the debt is very substantial -- it is a very saleable company because the product is known, it's got a great reputation and the consumer has always liked the product," says Jerry Reisman, a business and retail expert and a partner at corporate law firm Reisman Peirez Reisman and Capobianco of Garden City, N.Y. "It needs new management. It needs new direction. [But] it has a place in the market."

The Los Angeles-based manufacturer and retailer, known for its "Made in USA" mission, surprised Wall Street on Wednesday evening when its board of directors put out a press release saying they had voted to replace Charney, 45, and notified him of their intent to terminate his employment with co-chairman Allan Mayer citing "an ongoing investigation into alleged misconduct" as the reason. American Apparel shares rose 6.7% to 68 cents on Thursday as investors cheered the news.

As part of Wednesday's announcement, the board named current CFO John Luttrell as interim CEO. Prior to joining American Apparel in February 2011, Luttrell served in executive positions at Gap's (GPS) Old Navy, The Wet Seal (WTSL) and Cost Plus. The board also appointed Mayer, its lead independent director, and David Danziger, as co-chairmen. Charney's termination is expected to be effective following a 30-day "cure period" as part of his employment agreement.

After American Apparel CEO Ouster, 3 Retail Execs that Could be Axed

American Apparel Now Risks Credit Default by Firing CEO Charney

"We take no joy in this, but the board felt it was the right thing to do," Mayer said in the press release. "Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead." American Apparel has hired a search firm to identify candidates for a permanent chief executive position.

More importantly though, the company warned that the removal of Charney could trigger "an event of default" under its credit agreements with Lion/Hollywood LLC and Capital One Business Credit Corp. American Apparel said it would be in discussions with the lenders for a waiver of the default, it said.

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