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Charney nears American Apparel return

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NEW YORK -- Two weeks after an unceremonious ouster from American Apparel, Dov Charney has a fighting chance of wresting back control of the clothing retailer he founded 16 years ago -- even as his opponents show no signs of backing down.

Charney's fellow board members suspended him as chief executive officer last month for a litany of alleged misdeeds said to range from misuse of company funds to retaliating against a former employee who sued him for sexual harassment. The company has enlisted a firm that specializes in investigations to help it dig up more dirt on Charney, and it's making hay over the founder's request American Apparel return a computer containing his personal photos.

Since being canned, Charney has refused to walk away from the company and is now within arm's reach of making his return a reality. Helped by a loan from a hedge fund, he increased his stake to 43 per cent of the retailer's shares, just shy of the majority he needs to reshape the board with handpicked directors who could reinstate him. He's now poised to take his appeal directly to the shareholders and would need the support of just more than seven per cent of the base to get his way.

"His chances of succeeding look pretty good," said David Rosewater, a partner for Schulte Roth & Zabel in New York who has worked on consent solicitations in the past. "It is not a very high bar to get to a majority of the outstanding."

The drama is the latest saga in a succession of ups and downs since the Los Angeles-based chain started trading publicly in 2007. It rapidly opened stores in the middle of last decade when it became a hip place to shop for basics such as T-shirts, peaking with a 41 per cent sales gain in 2008. By 2009, the chain faced what would become one of several cash shortfalls it's survived by borrowing money, selling shares and convincing lenders to amend credit agreements.

The company found some solid ground in the first half of last year, with sales rebounding until a malfunctioning distribution centre stalled the turnaround. The company had to raise capital again, this time by selling stock to the public.

That recent patch of turbulence, combined with Charney's controversial history and the board's investigation, culminated last month in his suspension and a plan to fire him within 30 days. The 45-year-old has been sued for sexual harassment multiple times, with all the cases either being dismissed or going to private arbitration.

The board is using FTI Consulting to intensify its investigation of Charney, said a person familiar with the situation who asked not to be named because the matter is private. FTI is a global advisory firm that works on issues ranging from business reputation to investigations.

Charney's lawyer recently sent a letter to American Apparel asking it to hand over a server on company property that contained Charney's personal photos without accessing any of them, said a person familiar with the situation. The company is assessing if it has the legal right to access the server, the person said. Another person said the request stems from a legal agreement between Charney and the company that set up a server for him to safely store his photos, some of which were used by the company, and to only be accessed by him.

Charney last week returned fire by buying 27.4 million shares, boosting his stake in American Apparel to 74.6 million shares, regulatory filings said. The purchase was funded by a loan Charney got from Standard General last week.

Charney, an American Apparel spokesman and Nicole Madison, a spokeswoman for FTI, declined to comment.

Charney is now resorting to a tactic called a consent solicitation, which would allow him to add his directors if he can win approval from holders of more than half of the shares.


-- Bloomberg News

Republished from the Winnipeg Free Press print edition July 3, 2014 B4

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