Ousted American Apparel Inc Chief Executive Officer Dov Charney has handed over his entire stake and voting rights in the struggling retailer to Standard General LP, enabling the fund to negotiate directly with the independent directors over the company's future, two sources close to the matter said on Wednesday.
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Earlier Standard General had loaned its American Apparel shares to Charney, according to regulatory documents, allowing him to boost his stake in the company from about 27 percent to 43 percent. Charney had hoped to gain majority control, but American Apparel countered with an anti-takeover plan that prompted him to change his strategy.
As a result, the 45-year-old American Apparel founder handed over his entire holdings to his ally Standard General, according to the sources, who requested anonymity because the talks are private.
The retailer, which has refused to meet with Charney since he was suspended, has agreed to negotiate with the New York-based fund over the retailer's corporate governance structure and its financial condition, the sources said. It is unclear what changes will result, and the sources cautioned that the negotiations could still fall apart.
American Apparel declined to comment. Standard General officials were not immediately available for comment.
Charney, accused of misusing corporate funds and helping disseminate nude photos of an ex-employee, has also given up his battle to recover his CEO role until an investigation being led by FTI Consulting is completed, the sources said.
According to regulatory filings earlier this week, Charney himself had intended to pursue discussions with the board and called for a special shareholder meeting on Sept. 25.
Days earlier, American Apparel said it had adopted a "poison pill" takeover defense that would be triggered when shareholders who own more than 15 percent of the stock acquire an additional 1 percent or more. At the time Charney was in the process of building his shares.
Standard General, known for investing in distressed companies such as RadioShack Corp <RSH.N>, has had a relationship with American Apparel. The fund provided capital in March when the retailer needed to make an interest payment to its largest bondholder, Monarch Alternative Capital, a third source familiar with the matter said.
Amid the public battle between the company and its ex-CEO, American Apparel employees have expressed concern over the company's future, including a possible buyout, the sources said.
Last week, a board director spent several hours at its main manufacturing facility in Los Angeles assuring employees that the company still cares about them and that the company is not for sale, one of the sources said.