This morning there is an interesting take out there regarding American Apparel Inc. (AMEX: APP).  PEHub.com has reported that American Apparel is working with Rothschild as advisor to help it explore a sale. 

CEO Dov Charney has reportedly been fighting a sex slave case and a sexual harassment case and PEHub notes that this ownership is now 54% to 60% of the company.  One issue brought up is whether or not Charney would get to stay with the company.  If you have witnessed the stock performance the answer is ‘likely not.”

There is another thought here that goes above and beyond what Lion Capital’s creditor position and beyond the possible bankruptcy talk.  The question which was not asked is if there is any real value here at all remaining in American Capital.  Is there any value?

Having a dominant majority ownership with a CEO in legal trouble while rumors of a possible bankruptcy is no joking matter.  At $0.84 this morning, the 52-week trading range is $0.66 to $3.62 and its market cap has fallen to under $64 million.  The company is choking in debt and is losing money.  Sales have not really gone anywhere and that rise cotton prices is doing the company no favors.

At one point it looked as though this company might end up being what Gap was from the 1980s to 1990s.  American Apparel had a chance of being one of the great SPAC success stories as the alternative IPO model.  That was not to be.

We do not want to circle the wagons with any immediate bankruptcy talk, particularly since PEHub has noted that discussion have been held with one potential buyer.  What we would point out is that creditors rather than shareholders end up owning a company if there is anything left after a bankruptcy filing.  A buyer might be able to step in to save the day, but the risk in acquiring this today is that existing shareholders get to vote (and can sue) even if they do not have a majority voting stake.  Many holders have already lost large amounts of money and some might fight against a merger to the bitter end. 

This is one of those cases where making an offer could just drive up the price yet still not save the company.  Buying the assets out of bankruptcy court in a deal worked out with creditors might be far easier than trying to save the company today. 

We’ll see if a buyer surfaces or not.  Stranger things have happened.

JON C. OGG

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