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American Apparel and investors are said to reach deal on retailer's future

After three weeks of battle over the future of American Apparel, the retailer appears to have reached a deal in principal with its largest shareholders to remake the board of directors and upper management at the company, while keeping manufacturing of its clothing in the United States.

An American Apparel store in New York City.
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An American Apparel store in New York City.

The retailer and the New York investment firm Standard General have agreed on the terms of the deal, according to a person familiar with the negotiations. No documents have yet been signed.

Dov Charney, the company's founder whose surprise ousting last month from his position as chief executive brought on turmoil about the future of the company, is said to have agreed as well.

The deal will include $25 million to bolster American Apparel's finances, and to address certain loans with particularly unfavorable terms.

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Two weeks ago, Mr. Charney joined with Standard General to buy 27 million shares of American Apparel stock, bringing his stake in the company up to 43 percent. But in order to strike that deal with Standard General, Mr. Charney had to essentially relinquish his right to vote his shares unless he got approval from Standard General—leaving ultimate control of that 43 percent in the hands of the investment firm. Another small batch of shares that Standard General owns brings its stake to about 44 percent.

Mr. Charney struck this deal, signing away his power, because he had few options and because he was afraid of the alternatives that were circling his weakened company. There was tremendous uncertainty after his ouster about where American Apparel might end up, and Mr. Charney was concerned there might be a scavenger-like frenzy among a group of bondholders, which hold about $210 million of the company's debt.

As it stands, the deal between Standard General and American Apparel is said to call for a largely remade board, with only the current co-chairmen, David Danziger and Allan Mayer, staying on.

The agreement also includes a statement from Standard General saying it supports keeping manufacturing in the United States, bucking a longstanding industry practice of making garments overseas. The company's American-made clothing has been as much a part of the brand's identity as its sexually provocative marketing.

While greater stability may be in sight for American Apparel, Mr. Charney's future at the company he founded is still unclear.

As part of his original deal with Standard General, he had to agree not to seek a seat on a reconstituted board, and the firm has made no commitments to him in terms of what kind of executive role, if any, he might have in the future.

Read MoreCan American Apparel CEO Dov Charney be 'cured?'

Whether Mr. Charney will stay or go depends on the outcome of an investigation the board began into his personal and professional conduct. Once the investigation is complete, the new board will decide what role, if any, he should have at the company, according to people with knowledge of the situation.

For years, Mr. Charney has been trailed by accusations of sexual harassment and was sued by employees who said he had created an unsafe work environment rife with innuendo and sexual misconduct.

Read MoreEx-American Apparel CEO gives stake to hedge fund

The company's investigation continues.

—By The New York Times' Elizabeth A. Harris

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