Exclusive: Ousted American Apparel CEO hands over stake to hedge fund

Thu Jul 3, 2014 7:53am EDT
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By Nadia Damouni and Jeffrey Dastin

(Reuters) - Ousted American Apparel Inc APP.A Chief Executive Officer Dov Charney has handed over his entire stake and voting rights in the struggling retailer to Standard General LP, enabling the fund to negotiate directly with the independent directors over the company's future, two sources close to the matter said on Wednesday.

Earlier Standard General had loaned its American Apparel shares to Charney, according to regulatory documents, allowing him to boost his stake in the company from about 27 percent to 43 percent. Charney had hoped to gain majority control, but American Apparel countered with an anti-takeover plan that prompted him to change his strategy.

As a result, the 45-year-old American Apparel founder handed over his entire holdings to his ally Standard General, according to the sources, who requested anonymity because the talks are private.

The retailer, which has refused to meet with Charney since he was suspended, has agreed to negotiate with the New York-based fund over the retailer's corporate governance structure and its financial condition, the sources said. It is unclear what changes will result, and the sources cautioned that the negotiations could still fall apart.

American Apparel declined to comment. Standard General officials were not immediately available for comment.

Charney, accused of misusing corporate funds and helping disseminate nude photos of an ex-employee, has also given up his battle to recover his CEO role until an investigation being led by FTI Consulting is completed, the sources said.

According to regulatory filings earlier this week, Charney himself had intended to pursue discussions with the board and called for a special shareholder meeting on Sept. 25.

Days earlier, American Apparel said it had adopted a "poison pill" takeover defense that would be triggered when shareholders who own more than 15 percent of the stock acquire an additional 1 percent or more. At the time Charney was in the process of building his shares.   Continued...

A man walks past an American Apparel store in New York June 19, 2014. REUTERS/Brendan McDermid