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Hedge Fund Urges American Apparel to Consider Sale

Lion Capital, the investment firm which previously lent money to American Apparel, is reportedly urging the fashion basics retailer to consider options for moving forward post Charney, including a possible sale of the company.

Earlier this month, American Apparel’s founder and former CEO, Dov Charney, was fired from the company for a second time based on an investigation into his alleged inappropriate sexual conduct with female employees. Charney was previously let go in June over the investigation, but had been acting as a consultant for the company since.

Lion Capital, which holds warrants to buy 12 percent of American Apparel’s stock, made the sale suggestion in a letter Sunday that called on the retailer’s board to create a special committee to evaluate strategic alternatives, the Wall Street Journal reported citing unnamed sources.

The investment firm reportedly nominated Lyndon Lea, one of its founding partners, to American Apparel’s board and asked that he sit on the special committee. Lion has the right to nominate two directors to the board, and one of the seats was filled in August by Robert Mintz, a longtime friend of Charney’s.

Last week, American Apparel’s Board of Directors confirmed that the company received a buyout offer from Irving Place Capital for $1.30 to $1.40 per share and said it would evaluate the proposal as it positions the company for a turnaround. The company’s stock closed Friday at $1.06.

American Apparel also announced last week that board co-chairmen, Allan Mayer and David Danziger have stepped down and will be replaced by board member Colleen B. Brown who will take over as chairperson.

Charney’s very public tensions with the board have cast the brand in a negative light of late, but Paula Schnieder, the former Warnaco executive who will take over as American Apparel’s new CEO as of Jan. 5 said the iconic brand has “a unique and incredible story” and that she intends to better the company while staying true to its values of quality and creativity and its commitment to sweatshop-free U.S. manufacturing.

With a 43 percent stake, acquired through a partnership with investment firm Standard General, Charney is still the company’s largest stakeholder, though he shares voting rights on the stock with the firm.

American Apparel’s board said last week that it put in place a shareholder rights plant to prevent any person or group from amassing more than 10 percent of the stock, but the plan isn’t intended to protect against all offers for the company.