American Apparel continued its rollicking ride as it considered a takeover bid and shook up its board again.
The Los Angeles retailer said Monday it received an offer of $1.30 to $1.40 a share — representing up to a 31% premium over American Apparel's closing price Friday. The bid values the company at $226 million to $243 million.
The stock, which was hovering in the 50-cent range before acquisition rumors began last week, shot up 6.5% to $1.14.
"The Board takes these matters seriously, and it will evaluate this proposal in the ordinary course of business," the company said in a statement.
The bidder was not disclosed. But a person familiar with the matter said private equity firm Irving Place Capital made an offer of $1.30 to $1.40 a share and was interested in bringing back founder Dov Charney in some capacity. Charney was fired last week as chief executive after an investigation uncovered inappropriate conduct including improper behavior with employees.
Also Monday, American Apparel added another woman to its top ranks. Colleen B. Brown, who was appointed to the board in August, takes over as chairwoman. Paula Schneider, a longtime retail executive, was appointed the new chief executive starting Jan. 5.
Allan Mayer and David Danziger will step down as co-chairmen but remain on the board. "Both David and I have demanding day jobs," Mayer said. "We felt it was time to step aside.… Clearly both of us will still be very involved."
The takeover offer and board shake-up signals yet another turn in a dramatic six months for American Apparel after its board initially ousted Charney as chairman and suspended him as chief executive in June. Before his termination last week, Charney had been working as a consultant for the company.
The new bid has not swayed American Apparel's board from its plan to retool its operations, according to a person familiar with the company's thinking. The retailer said Sunday it had adopted a shareholder rights plan — known as a poison pill — to ward off hostile takeovers.
"Clearly this is not the time to sell the company — we are on the verge of turning things around," the person said. "You want all that to play out before thinking about selling it."
Under the poison pill, any person or group that acquires more than a 10% stake in American Apparel common stock will be deemed an "acquiring person." Any person or group that already owns 10% or more will be dubbed an acquiring person only if they buy an additional 0.1% of common stock. Charney, along with New York investment firm Standard General, holds a nearly 44% stake; no other shareholders own more than 10%.
If either of those events occur, existing stockholders will be able to buy additional stock in the company for $3.25 a share. If there is a takeover, stockholders will also be entitled to receive common stock in the purchasing company at a value that is equal to twice the exercise price of the right (at this point, $3.25).
"The rights plan is designed to limit the ability of any person or group to seize control of the company without appropriately compensating all American Apparel stockholders," the company said.
Some analysts said that $1.40 a share is too low an offer, especially now that the company is positioned for a fresh start in 2015.
"I would not take an offer at the very bottom, which is what this probably is," said Antony Karabus, chief executive of Hilco Retail Consulting. "The right thing to do is have the new CEO and new chairwoman develop a turnaround strategy, execute, and sell for significantly more."
The board is betting that a new management team can help the company swing back to profitability, observers said. It's a tough challenge — the retailer has lost $310 million in nearly five years and carries more than $200 million in debt. In its latest quarter, American Apparel posted a net loss of $19.2 million, or 11 cents a share.
American Apparel could also be angling for a higher bid from Irving Place Capital, kicking off a period of delicate negotiations, said Ronnie Moas, founder of Standpoint Research, a market research firm.
"It's like poker," Moas said. "If American Apparel turns it down, the company making the offer can get upset and say, 'We are taking the offer away.' Sometimes people will call your bluff and sometimes they won't, and each side is positioning themselves right now."
Irving Place Capital did not respond to emails for comment. Charney also declined to comment.
American Apparel adopted a similar — but less restrictive — poison pill plan in June to prevent Charney from regaining control of the company.
Charney ultimately tethered his shares to New York investment firm Standard General in an effort to stage a comeback. But Standard General effectively controls those shares. The hedge fund pushed for a board shake-up earlier this year, which prompted Charney to resign as a director.
A successful buyer could install Charney back in a creative position while keeping an experienced executive in the CEO job, Moas said. The company could tap his expertise while avoiding years of expensive litigation.
Charney "is a talented individual but he's probably not the best person to put out there in the public," Moas said. "In order to take the company to the next level they need a couple new people in there."