American Apparel Confirms Sale to New York Company
American Apparel Inc. formally announced on Dec. 19 that it has entered into a merger agreement valued at $383.5 million with Endeavor Acquisition Corp., a specified-purpose acquisition company based in New York. The often-lauded if sometimes controversial Los Angeles manufacturer, known for its vertically integrated business and sexually provocative advertising, will sell its manufacturing and retail divisions for $250 million in unrestricted Endeavor stock and $23 million in bonuses and stock options for top employees. Endeavor will also assume $110 million of American Apparel’s outstanding debt.
A press release from American Apparel said it will retain its name and Los Angeles headquarters and is expected to trade publicly on the American Stock Exchange. Dov Charney, American Apparel’s founder and chief executive, will remain with the company, as will core members of the company’s management team.
As part of the acquisition, Charney could receive more than 32 million shares of unrestricted Endeavor stock. The deal also calls for Charney to purchase an unnamed American Apparel stockholder’s shares for $60 million, according to the company release. The deal, which is expected to close in mid 2007, hinges on Endeavor receiving an opinion from an independent investment banking firm that the transaction is fair to its stockholders and to stockholder approval of the deal.
Charney could not be reached for comment but said in the press release that the merger gives American Apparel “the necessary financial foundation [to] give us the opportunity to realize our bigger dreams.” The infusion of funds will help the company improve its manufacturing processes and implement global growth plans, he said.
Sources close to the deal said it came about after Charney had searched for investors to maintain American Apparel’s fast-paced growth strategy.
American Apparel, which launched in 1997, has grown from manufacturing body-conscious T-shirts for the hipster set to making everything from jersey dresses and swimwear to collared shirts and duffel bags. The company got into the retail game in 2003. The sale encompasses both American Apparel’s manufacturing and retail divisions.
American Apparel’s retail division has grown to 143 shops domestically and in China, Korea, Canada, Germany, the Netherlands, Mexico, Israel, France and Switzerland, according to the American Apparel Web site. The company, which sponsors arts events and champions workers’ rights, packed its no-frills storefronts with cool basics.
The retail expansion helped the company’s sales grow to an estimated $250 million in 2005. However, according to The New York Times, American Apparel’s retail sales stalled in 2006, rising only 7 percent this year in stores open at least one year, compared with 74 percent in 2004 and 45 percent in 2005. The company is estimated to reach sales of $275 million in 2006.
The company, which produces all of its goods at its downtown Los Angeles factory, is known for its socially conscious approach to manufacturing. American Apparel employees benefit from affordable health care, immigration support, free English and computer classes, and subsidized lunches and bus passes—all of which has led to recognition from industry groups and the national press.
However, in 2005, Charney and his company landed in hot water when several former employees charged Charney with sexual harassment. Two of the three suits have been dropped, but they put a spotlight on the company’s unconventional work environment.
