Bloomberg

Dov Charney, the ousted founder of now-bankrupt American Apparel Inc., has hired Cardinal Advisors LLC in an attempt to alter the course of the company's bankruptcy, which as of now would lead the business to ownership under a group of lenders, including New York hedge fund Standard General LP.

Charney said he is “exploring plans with investors and industry executives in an effort to develop a value-maximizing solution" for American Apparel, according to a Dec. 4 statement. He has been trying to regain control of the made-in-America clothing line he started in 1989 since his firing in December 2014.

"Charney is confident that new and existing investors, working with him and his team of industry leaders, would be able to realize significant long-term value for American Apparel's stakeholders," the statement says.

"We can confirm that there is currently no transaction to consider and that Mr. Charney has submitted nothing more than an indication of interest," an American Apparel representative told Mergers & Acquisitions. "American Apparel evaluates all indications of interest consistently, and in the ordinary course."

Los Angeles-based American Apparel filed for Chapter 11 bankruptcy protection on Oct. 5 with a pre-arranged plan that proposed a takeover by the company's secured lenders, including Standard General.

Before it landed in bankruptcy, American Apparel skidded down a spiral that included firing Charney twice and a 17.4 percent year-over-year sales decline that it blamed on the company’s not carrying enough new styles during the spring and summer sales seasons, and on store closures. Some of the company’s struggles involve challenges the whole retail industry faces, including e-commerce and mobile shopping. Mergers & Acquisitions explored the issues in depth in our recent cover story, American Apparel's Bankruptcy Underscores Challenges for Retailers. Although the National Retail Federation says U.S. holiday shopping is poised to deliver modest growth, including good turnout during the Thanksgiving and Black Friday weekend and strong online sales so far, observers predict more retailers will file for bankruptcy in 2016. 

American Apparel's store closures were part of the company's planned turnaround, which included implementing $30 million in cost-cutting initiatives and modifying the brand's apparel lineup. After Charney, the brand also worked to tone down the overtly sexual nature of its advertising.

Back in 2014, Standard General picked up a small American Apparel stake, and Charney handed the hedge fund his voting power in exchange for an internal conduct review regarding alleged behavioral misconduct that ended in his termination. That process overlapped with American Apparel's fielding of a buyout offer from New York private equity firm Irving Place Capital. But after that, the company's decline pushed it farther from a potential buyout. 

In bankruptcy, American Apparel is a more attractive acquisition target. A reorganized business would be free from Charney's lawsuits, which he filed after his termination, and a significant amount of debt.

A confirmation hearing for American Apparel's reorganization plan, which includes no place for Charney, is scheduled for Jan. 20. 

For the previous edition of Turnaround Tuesday, see Troubled Social Media Biz Moko Sells Political Commentary Unit to Focus on Sports. For a list of struggling businesses, see Mergers & Acquisitions' Distressed Company Watch List. 

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