NEW YORK (TheStreet) -Ousted American Apparel
(APP) CEO Dov Charney disclosed Tuesday that he now owns a 43% stake, which could mean the next step for the company is the courthouse, according to an expert.
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.
Even if Charney's 43% stake is deemed beneficial, acquiring even just 1% more will trigger the poison pill, Hewitt said. With the addition of the poison pill, American Apparel's board has fortified itself enough that it would be a "time-consuming process to take control of the company," according to Hewitt. American Apparel already held its annual shareholder meeting back in April. Additionally, the company has what's called a "classified" board, meaning all directors are not re-elected every year. More recently, the board has taken away shareholders right to call a meeting and made it harder for shareholders to act by written consent, according to Hewitt. Shares have soared since June 18, gaining 40%, the day before the Los Angeles-based company announced that it had "terminated" Charney, 45, who founded the company in 1997.
The longer the fight between Charney and American Apparel's board goes on for, the more likely that the only option for the company would be to find a buyer. American Apparel is facing a potential liquidity crisis as the deadline (a deadline of July 4 according to media reports) nears for its to repay its $10 million loan to Lion Capital, following the removal of Charney. An American Apparel spokeswoman declined to comment. --Written by Laurie Kulikowski in New York. Follow @LKulikowski
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