Without a new influx of cash, t-shirt-and-neon-thong-bodysuit purveyor American Apparel is facing bankruptcy. The company — which lost $86.3 million last year, and finished the month of February with just $5.3 million in cash on hand — has warned that its Chapter 11 filing may come as soon as April 30. But hark! On the horizon — could it be? A man with $10 million to give to Dov Charney:
The Los Angeles-based company has held talks with an individual investor in recent days who has expressed interest in providing money for the retailer, run by controversial Chief Executive Dov Charney. The money would come in the form of equity, this person said. The potential investor, whose identity couldn't be determined, isn't a well-known name, this person said. The company hopes to secure a deal as soon as this week.
Talks with the investor faced some wrangling in recent days, the person said, and optimism about clinching a deal has faded. If the talks fall apart, American Apparel could be forced to file for Chapter 11 bankruptcy protection as it runs low on cash, the person said. Some close to the company said it can still avoid bankruptcy even if the talks fall apart.
According to the New York Post, the issue is not this mysterious investor's willingness to donate $10 million to a company that, under Charney's watch, is run with all the fiscal restraint of a drunken sailor on shore leave. No, the investor — who, if it matters, is Canadian — is allegedly more than happy to cough it up. The hold up is on American Apparel's end. The board is allegedly dithering over whether or not to accept the money that might save it from bankruptcy, lest such a course of action inadvertently cement C.E.O. Dov Charney's grip on the company.
See, the "proposed terms of the financing are expected to dilute the company's current shareholders — with the possible exception of Charney. That's because a proposed 'earn-out' provision would give Charney, who is the company's majority shareholder, options to acquire additional shares if the stock appreciates in the future, according to one source."
In March, Charney bought another 6 million American Apparel shares, taking his stake to around 53%. One of American Apparel's biggest lenders, the private equity group Lion Capital, owns just over 20%.
Last week, Charney expressed his frustrations with the American Apparel board "repeatedly" during an interview with the New York Times; it looks more and more like the board (and possibly Lion Capital) are trying to force him out. But choosing bankruptcy over Dov Charney's lawsuit-prone, spendthrift, and generally hapless continued management? That's extreme.
Dov Charney's Long Night Of The Soul