New York -- The battle for control over American Apparel Inc. shifted into high gear with the company adopting a one-year stockholder rights plan, or so-called poison pill, aimed at stopping founder and ousted chairman and CEO Dov Charney from seizing control of the chain.
Charney is American Apparel’s largest shareholder, with a 27.2% stake in the company. On Wednesday, he signed a deal with Standard General whereby the New York firm would buy at least 10% of the company’s stock and then loan Charney the funds to acquire the stake.
A special committee of the retailer's board made the move to adopt the poison pill after Charney stated his "intent to acquire control or influence over the company" in a Friday filing with the Securities and Exchange Commission, American Apparel said in a statement released Saturday. The plan doesn’t kick in until someone acquires 15% of the company or in the case of Charney who already owns more than that, when he acquires an additional 1% of the firm.
"The rights plan is designed to limit the ability of any person or group, including Dov Charney, to seize control of the company without appropriately compensating all American Apparel shareholders," the statement said. "It is intended to provide the board of directors and stockholders with time to make informed judgments."
Charney is not backing down on his fight to regain control. His attorney filed an arbitration petition on Monday with the American Arbitration Association. alleging wrongful termination, breach of contract and retaliation, among other charges.
The struggling retail chain also is confronted with having to repay a $10 million loan to its lender Lion Capital by July 4, possibly trigger a default on other borrowings, the Wall Street Journal reported.