American Apparel Execs: Investors Not Looking to Sell; Possibly Investing More
The private-investment group that recently invested $15 million in American Apparel is possibly looking to invest further in the Los Angeles–based manufacturer and retailer, according to company executives. The announcement contradicts earlier reports that the investment group led by Toronto-based Michael Serruya was looking to sell their 43.2 million shares in the company after the group filed registration paperwork with the U.S. Securities and Exchange Commission on Aug. 30.
The investors—including Delavaco Capital; Front Street Investment Management; and Clara, Jack, Sam and Simon Serruya, among others—filed a Form S-1 with the commission, which enables them to sell 24.2 million shares of common stock issued to the selling stockholders in accordance with an April investment agreement and up to 19 million additional shares of common stock. Although registering securities is a common practice, the action had led some in the industry to speculate that the group may be preparing to sell their shares in the struggling company.
The group is not selling any shares at this time, said American Apparel’s senior vice president and general counsel and secretary Glenn Weinman, who added that the group is considering making additional investments with the company.
“The S-1 was not filed for the purpose of them selling their shares, but to improve their investment position,” Weinman said. “I don’t believe they are looking for anything other than a long-term investmenthellip; They are considering putting in additional funds and I believe they will make an additional investment in the company.”
Michael Serruya could not be reached by press time, although, according to a company executive, the Serruya team was recently in Los Angeles visiting the company. Michael Serruya is a co-founder of CoolBrands International Inc., which operates a franchise network of frozen yogurt and ice cream stores. (The company recently merged with hygiene company Swisher International Inc.) He is also an entrepreneurial investor with investments in several different companies, including Jamba Inc., which operates Jamba Juice locations.
As of July 31, Chairman and Chief Executive Officer Dov Charney owned 47.1 percent of the outstanding common stock, Lion/Hollywood L.L.C. owned 11.6 percent of the outstanding common stock, and the investment group owned 23.3 percent of the outstanding common stock.
American Apparel would not receive any proceeds from the sale of the shares if they were to be sold. If the purchase rights are exercised, American Apparel would receive the money from the sale. The purchase rights would then turn into additional shares, Weinman said.
The vertically integrated clothing company was founded in 1998 by Charney and has recently faced financial challenges and rumors of pending bankruptcy, despite reporting improved second-quarter results in August. Deloitte & Touche resigned as its accountant in 2010 after notifying the company that its 2009 financial statements may not be reliable, according to an earlier Bloomberg news report, and the company was later investigated by the SEC and the U.S. Attorney’s office for the Southern District of New York and risked falling out of compliance with an $80 million rescue loan from Lion Capital, according to the New York Times.
It has also been reported that private equity firm Leonard Green & Partners—which has investments with J. Crew and Neiman Marcus, among others—has offered the company a $100 million loan for its name and intellectual property, according to Drapers. A private-equity firm associated with businessman and fundraiser Ron Burkle has also been rumored to be interested in helping the company re-finance.
Weinman couldn’t comment on the possible loans, but said Serruya and his investment group were very pleased with American Apparel.
“They’re impressed with Dov Charney, the company’s business operations and the brand,” Weinman said. According to the American Apparel website, the company currently employs approximately 10,000 people globally and operates more than 285 retail stores in 20 countries. The price of the company’s common stock on the New York Stock Exchange waslisted as 91.5 cents per share as of Sept. 6.