WWD : Assessing the Post-Dov Charney American Apparel

The high-wire act that was Dov Charney as chairman and chief executive officer of American Apparel Inc. met its abrupt — and some believe inevitable — end Wednesday, bringing down one of fashion’s most colorful figures and opening the door for a potential sale of the company he founded.

After a 10-hour marathon meeting behind closed doors in New York, the company’s board said late Wednesday it had replaced Charney as chairman and planned to terminate him as president and ceo for cause in 30 days, citing “an ongoing investigation into alleged misconduct.”

Reached by WWD Thursday, Charney sounded relaxed, but stayed mum: “There’s nothing I have to say right now.”

Competing retailers and industry observers have been predicting his departure or the company’s bankruptcy for years and, until now, Charney had proved them wrong with his resiliency.

Since Charney founded the Los Angeles-based firm as a blank T-shirt maker in 1997, it has been many things: a phenom brand mining Seventies culture and selling it to hipsters; a pot-stirring marketer featuring ads with an amateur-porn vibe; an advocate of immigrants, and the highest-profile domestic apparel producer.

Charney’s reputation, though, is tied more to his libertine attitudes — living with young employees in his L.A. mansion and serving as fit model for the company’s underwear. American Apparel’s ad campaigns also often featured female employees in sexually provocative poses — ads that were conceived by Charney. He was repeatedly sued by employees for sexual harassment, claims that the ceo denied and the company once decried as baseless “shakedown attempts.”

But it seems to have been Charney’s response to the suits that ultimately took him down, or provided American Apparel’s board with the justification it needed to cut him loose.

A source close to the situation said the shake-up was “a culmination of many events” and that Charney had dispatched certain litigation without the board’s knowledge, providing the “straw that broke the camel’s back.”

“When the board looked into certain settlements that were not authorized, it became apparent that some duties could have been breeched by Dov,” the source said, adding that the company’s poor finances and ailing stock price also could have contributed to the move.

Executive vice president and chief financial officer John Luttrell took the reins as interim ceo and said the company would stick with its “sweatshop-free, Made in USA” stance on manufacturing.

Even so, the firm is heavily indebted with a weakened stock price and now has something of a power vacuum at the top.

“The goal is to get a new management team in and run this business,” the source said. “The goal isn’t to sell the company, but obviously in these types of situations you have to examine all of your options.”

Investors were supportive of Charney’s ouster and pushed American Apparel’s stock up 6.7 percent to 68 cents, giving the company a market capitalization of $118.5 million. Nearly 18.5 million shares traded hands, well over the 2.8 million daily average for the past three months.

“We take no joy in this, but the board felt it was the right thing to do,” said Allan Mayer, who was named cochairman along with David Danziger. “Dov Charney created American Apparel, but the company has grown much larger than any one individual and we are confident that its greatest days are still ahead.”

Charney has technically been suspended from his executive roles and his termination will be effective following a 30-day “cure” period stipulated in his employment agreement.

The company said the management change might have triggered a default under its credit agreements and that it will seek a waiver from its lenders. American Apparel said in a regulatory filing that if it can’t get such a waiver, its lenders could accelerate payments required, “which could cause us to become bankrupt or insolvent.”

American Apparel has repeatedly skirted on the edge of a financial precipice as its debt mounted and the terms of the debt became increasingly onerous. In 2009, it reached an agreement with Lion Capital for additional funds and as of April, Lion had warrants for shares equivalent to a 12.4 percent stake if they were exercised. (A spokesman for Lion Capital said the firm and its cofounder Lyndon Lea declined comment.)

American Apparel turned to the public markets this year to boost liquidity, generating $28.5 million in proceeds from the sale of common stock and diluting existing holders, including Charney, in the process. Some of the proceeds were used to pay down its credit facility with Capital One.

But, as has been the case throughout the last five years, adjustments to American Apparel’s balance sheet have tended to ameliorate one problem while complicating another. The annual interest rate on its loan from Lion increased to 20 percent from 18 percent after an earlier “special interest trigger event” took place at the end of 2013 when its debt-to-equity ratio exceed 4.5 to 1.

In April, FiveT Capital Holding AG, a Zurich-based investment fund headed by Johannes Minho Roth, acquired 20 million shares of American Apparel, translating to an 11.5 percent stake in the company.

Charney remains the single largest shareholder in the retailer, although his stake was diluted in April by a public offering that saw his holding reduced to 27.2 percent from 42.8 percent.

The smaller stake might well have given the ceo less sway with the board.

“The fact is that with his behavior, he should have been fired years ago,” said one top executive at a specialty chain. “Anyone who behaves like that shouldn’t be running a company. The fact that he stayed on for so long is disgraceful. Behaviorally, he earned the right to get kicked out.”

Charney was also seen by some as in over his head.

“I’ve watched the stores,” said a women’s specialty store executive. “They started out with basic T-shirts, a factory direct kind of concept, great T-shirts, great colors, fast fashion, but I believe they evolved beyond what Dov knew what to do. Now you go into the stores and it’s a full-blown concept with every product category. The stores got bigger, they lost their focus and became almost overwhelming. [The company is] almost like a knit factory that evolved to a chain of stores worldwide. Dov got to a different place, beyond his reach.”

One retail industry insider said: “Dov was clearly having trouble. It was tough for the board to tolerate him. When the lawsuits started stacking up, the board had no choice. He settled several things personally, so it would not affect his employment.”

Some saw Charney’s lifestyle and the brand as too close for comfort.

“The way it portrayed young girls was a little tough,” noted the retail source. “The images were exploitive to women and they started to match his reputation. The imagery and his reputation seemed to blur together. I believe the imagery was quite alienating actually and appealed to a smaller percentage of girls, a limited customer base, who would aspire to look like that.”

The brand, though, like Charney, is multifaceted.

“It’s the end of an era,” said Mathew Swenson, former American Apparel marketing director. “I doubt there will be another chance to have a ceo that would allow you to do some of the things we did that were great. A new ceo would probably not even allow those things to be tried.”

Swenson was referring to the company’s socially aware advertisements and campaigns for factory worker rights, immigration reform and gay rights, as well as its liberal office culture. “Some of the better things we did get buried under the fact that we also showed girls in thongs,” he said.

In general, the brand itself is seen as solid.

“Survivability of the brand is not in question,” said Andrew Jassin, managing director of Jassin Consulting Group. “In almost every [case], even Apple, the company has survived the [departure] of its originator. The consumer doesn’t know who Dov is, and there’s no dramatic point of view except for a tongue-in-cheek comment or graphic on a T-shirt every now and then. Dov leaving could be a good thing. It perhaps can open the door for some clear thinking and new ideas.”

Jassin also noted that Charney leaving the company might be a plus for those consumers who have read about him being an “aggressive womanizer” and view that as a negative for the brand.

Financial and market sources saw Charney’s ouster as the first step toward a sale of the company. Industry executives said there’s been interest among financial buyers in acquiring the firm. Many potential buyers were said to have seen Charney as a liability.

“Charney fired many people over the last few months,” one market source said. “Charney has been the power keeper of everything. There is no more marketing department, no more allocation department, and even the firm’s general counsel left a month ago.…Dov was a one-man band.”

Marty Staff, a consultant and former chief business development officer at American Apparel, said: “I worked with Dov about a year and a half. Dov is a visionary. He did all the heavy lifting for the brand. It’s still a wonderful brand with a very significant business opportunity that’s unrealized.”

Sources said the level of financial sponsor interest has kicked up overnight as they begin to reevaluate the company.

Speculation in the industry is that a sale would likely involve a financial buyer, not a strategic one. While players such as Gap Inc., PVH Corp. or Urban Outfitters Inc. were names that were raised as “could be interested” in American Apparel, one potential stumbling block is the factory that produces American Apparel product.

One apparel source noted, “American Apparel owns the factory it uses, but not the building where the factory is housed. Charney has overpaid the workers and if the factory is adjusted so it is right-sized, that might cause the 7,000 employees there to unionize.”

>>> AlcatelLucent - Time to add some more

Fundamentals haven't change, less spec. about a potential Nokia Deal, Stock is back on Strong support, there is s till a gap opened lower...but still confident on the co...consolidation in the telco sector will help the stock to perform...I will add so me more here.

quick chart attached

(BFW) AB InBev Purchase of SABMiller Still Attractive, Canaccord Says


AB InBev Purchase of SABMiller Still Attractive, Canaccord Says
2014-06-20 08:28:44.107 GMT


By Heather Burke
     June 20 (Bloomberg) -- AB InBev should bid for SABMiller to
create ABSAB, Canaccord says; raises SABMiller to buy, PT by 27%
to 3,800p.
  * Says 1st expressed view 3 yrs ago; transaction still
    attractive, reasons for deal haven’t changed
  * AB InBev has to decide in next 12-18 mos. whether to extend
    LatAm Pepsi franchises for another decade, doing so will
    probably rule out a deal
  * 2-yr period has opened in which deal will occur or be
    shelved for good
  * 4,200p bid for SABMiller would be 8% accretive in 2nd yr


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jludden@bloomberg.net

WSJ : Shire Rejects AbbVie Approach

Shire Rejects AbbVie Approach
U.S. Drug Maker Says Shire's Board Turned Down Cash-and-Share Proposal

U.K.-listed drug maker Shire SHPG -1.30% PLC has rejected a £27.2 billion ($46.35 billion) takeover bid from U.S. rival AbbVie Inc. ABBV -0.70%

AbbVie said Friday that it had made three cash and share proposals to the board of Shire, with the latest valued at £46.26 ($78.87) for each Shire share, based on AbbVie's closing share price of $54.03 on May 29.

AbbVie, which was spun off from Abbott Laboratories ABT +1.56% in early 2013, said discussions were no longer ongoing and that there could be no certainty that any firm offer would be made.

Under U.K. takeover rules AbbVie has until July 18 to announce a firm intention to make an offer and said it reserves the right to introduce other forms of consideration and vary the cash and share mix of the bid.

Shire, which is domiciled in Dublin, couldn't immediately be reached for comment. Shire's shares closed at £37.38 on Thursday, valuing the company at roughly £22 billion.

The proposed deal follows Pfizer Inc. PFE -0.40% 's failed $120 billion attempt to buy AstraZeneca AZN.LN -0.26% PLC.

AbbVie, which makes arthritis drug Humira, in April reported a 1.2% rise in first-quarter profit to $980 million on net sales up 5.4% to $4.56 billion. The company hopes to bring other drugs to market over the next few years, including a treatment for hepatitis C.

In May, Shire raised its earnings guidance for 2014, saying it expects growth in underlying earnings per share to be in the mid- to high-20% range. Shire's first-quarter profit rose to $230.4 million from $64.8 million a year ago. Sales rose 16% to $1.35 billion in the latest quarter, boosted by sales of attention-deficit-disorder drug Vyvanse and the inclusion of blood-disease drug Cinryze, which came from Shire's $4.2 billion takeover of Viropharma that closed in January.

(BFW) Shire Rises Most Since 2006 After AbbVie Confirms Approach +14%


Shire Rises Most Since 2006 After AbbVie Confirms Approach
2014-06-20 07:07:19.388 GMT


By Allison Connolly
     June 20 (Bloomberg) -- Shire up as much as 14%, the most
since Oct. 2006; vol. at 29% of 3-mo. daily avg.
  * Panmure (buy) says offer of GBP46.26/shr implies 25x PER,
    which for a growth stock is “barely adequate”
    * Says AbbVie may be able to increase its offer to >GBP50
      depending on tax inversion benefits
  * NOTE: Earlier, AbbVie Confirms Made Approach to Shire
  * NOTE: Earlier, MORE: AbbVie Says Shire Rejected Approaches,
    Talks Are Off


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(BN) AbbVie Says $46.5 Billion Offer for Shire Rejected as Talks End


AbbVie Says $46.5 Billion Offer for Shire Rejected as Talks End
2014-06-20 05:26:38.523 GMT


By Drew Armstrong and Michelle Fay Cortez
     June 20 (Bloomberg) -- AbbVie Inc., the drugmaker split
last year from Abbott Laboratories, said three escalating offers
to buy Shire Plc for as much as 27.3 billion pounds ($46.5
billion) were rejected by the Dublin-based company.
     Shire’s board has so far turned down the proposals that
began in May and no talks are occurring, AbbVie said late
yesterday in a statement. The cash-and-stock offer would allow
AbbVie to diversify its portfolio beyond its top drug, the
arthritis medicine Humira, which generated 57 percent of its
2013 sales, according to data compiled by Bloomberg.
     AbbVie “made an indicative approach to Shire with a merger
proposal which was rejected by the board of Shire,” the North
Chicago, Illinois-based company said in the statement. “There
can be no certainty that any firm offer will be made.
Discussions are no longer ongoing.”
     The announcement of AbbVie’s bid for Shire is the latest
attempted merger in a period of increased acquisition activity
in the drug and medical device industry. Not including the
AbbVie offer, there were deals proposed or completed worth
$260 billion in the second quarter, according to data compiled
by Bloomberg, five times more than any quarter since at least
2009. Pfizer Inc.’s $117 billion rebuffed bid for AstraZeneca
Plc was the largest proposed deal in drug industry history.
     AbbVie’s first cash-and-stock offer to Shire was 39.50
pounds a share, and its latest bid increased to 46.26 pounds a
share, AbbVie said in the statement. Shire closed at 37.38
pounds yesterday in London, valuing the company at more than 22
billion pounds.

                         Takeover Rules

     The deal falls under U.K. takeover rules, which forced
AbbVie to disclose its proposal. The drugmaker will have until
July 18 to make a firm offer, or will go into a waiting period
where it can’t do so for as long as six months.
     Adelle Infante, an AbbVie spokeswomen, declined to comment
on the details or timing of the offer. Jessica Mann, a
spokeswoman for Shire, didn’t return an e-mail requesting
comment. The news was reported yesterday by Reuters.
     Shire’s biggest products are medicines to treat attention
deficit hyperactivity disorder, including Vyvanse and Adderall.
It has other drugs to treat rare diseases and neurological
disorders.
     AbbVie was identified earlier this year as a potential
merger partner for AstraZeneca when the London-based drugmaker
was defending the unsolicited bid from Pfizer.
     Shire’s shares rose earlier this week when John Boris, an
analyst at SunTrust Robinson Humphrey in New York, said the
Dublin drugmaker would be a target of Allergan Inc., the maker
of the wrinkle treatment Botox that is fighting a hostile
takeover bid of $45.7 billion from Valeant Pharmaceuticals
International Inc.

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NSN N4I3796K50XS<GO>
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darmstrong17@bloomberg.net;
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mcortez@bloomberg.net
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Andrew Pollack, Russell Ward

NY Post : Verizon Wireless eyeing Dish Network spectrum

Verizon Wireless is very interested in buying Dish Network’s spectrum, The Post has learned.
A top Verizon executive told a group of insiders in the last few weeks that the country’s No. 1 wireless carrier was eyeing the lucrative spectrum owned by Charlie Ergen’s satellite-TV company, a banker with direct knowledge of the conversation said.
Analysts have estimated Dish’s spectrum could be worth as much as $17 billion.
A second source close to the companies said the two companies have held informal, early talks about the spectrum.
Verizon’s appetite comes only weeks after it tried to quiet deal rumors.
CEO Lowell McAdam on May 20 said during an investor conference that Verizon was not interested in buying the $27 billion Dish.
“I don’t think owning a satellite company is something I’m interested in at this point,” McAdam said.
The CEO did not address Dish’s valuable spectrum.
Acquiring the bandwidths would help Verizon better stream videos in urban areas.
Plus, much of Dish’s spectrum is complementary to spectrum Verizon presently owns, a source said.
Much of Dish’s spectrum is important for short-range Wi-Fi communications.
The pressure may be building for Verizon to act soon.
The Federal Communications Commission last month set guidelines for selling government-owned spectrum and imposed rules that would make it harder — and more expensive — for the New York telecom to compete in those fall auctions.
“I would try like hell to skip those auctions,” a telecom expert said.
Buying Ergen’s spectrum would be a way to avoid that process.
Verizon might also be pushed to act sooner rather than later because, according to a recent analyst report, Dish soon might make a bid for T-Mobile, taking its spectrum off the market.
JPMorgan analyst Philip Cusick this week put forward the possibility that Dish might buy T-Mobile.
Ergen too might be motivated.
If he sold his spectrum for $17 billion, Dish’s shares could rise from $59.81, their closing price on Thursday, to roughly $70 a share, a source said.
Also, Ergen has until spring 2017 to connect 40 percent of his spectrum, or will need to return it to Washington.
It would cost Dish more than $10 billion to activate all of its spectrum.
Dish is presently rolling out a wireless fixed broadband service in Corpus Christi, Texas, that is rather antiquated and shows a lack of commitment to building a true wireless service, one source said.
Separately, in recent days Dish has postponed its annual meeting — and Ergen, in a little-noticed June 2 regulatory filing, updated his trusts. The update will allow, among other things, Ergen to dispose of his Dish shares in a change-of-control situation.
Verizon did not return calls, and Dish declined to comment.

NY Post : Toppled American Apparel CEO plots to retake helm

American Apparel is girding for a nasty battle with its controversial founder Dov Charney.
The board of the struggling clothing chain has hired boutique investment bank Peter J. Solomon as a financial adviser as it braces for blowback from its surprise move to oust Charney as CEO, The Post has learned.
Charney is looking to corral shareholder support to seize back the reins, according to sources. While he can’t oust current directors, he’s angling to gain a voting majority by packing the seven-member board with additional seats.
“Dov isn’t going down without a fight, and there’s an argument to be made that the board has overreached,” said a source close to the situation.
The board blitzed Charney at a Wednesday board meeting, citing personal-conduct issues. The board offered Charney, who has weathered sex-harassment allegations from female employees for years, a four-year consulting contract that he turned down, according to insiders.
Charney, whose stake was diluted to 27 percent from more than 40 percent following a $30 million equity raise in March, is looking to additional investors to gain a shareholder majority to demand as many as four extra directors, insiders said.
Among Charney’s likely supporters, sources said, are FiveT Capital, a Swiss hedge fund that had scooped up nearly 13 percent of the company as of April, according to securities filings.
Complicating matters Thursday, lender Lion Capital exercised a right to take two seats on the retailer’s board under the terms of a $15 million term loan it has extended to the company, sources told The Post.
Theoretically, sources said Charney could assemble a majority with the support of Lion and between two and four additional directors, depending on whether he can get support from an existing director.
If successful, such a move could nearly double the size of American Apparel’s board to 13 members, including the two new seats claimed by Lion.
One source close to the board said Charney could “potentially” pull off such a gambit, but cautioned that “it’s a lot more difficult than he may think.”
Charney declined to comment.
It’s not clear whether Lion would side with Charney, who remains a director, or take issue with the board’s move to fire the company’s controversial CEO and strip him of his chairman title.
Lion CEO Lyndon Lea has a history of supporting sometimes eccentric retail visionaries including Charney under previous financing deals. Lea’s fashion-focused investments have included John Varvatos, Jimmy Choo and AllSaints.
Having claimed board seats, UK-based Lion also could elect to demand immediate payment of the principal, creating a potential liquidity crunch for the cash-strapped retailer.
Indeed, sources said American Apparel’s board has hired Solomon mainly in case it needs to raise money to pay off the loan from Lion, likely through an issuance of fresh stock.
In 2009, Lion extended a term loan worth more than $80 million to help American Apparel through a liquidity scrape.
That loan was paid off late last year, but soon thereafter Lion extended the current $15 million loan, which gives it the right to throw the retailer into default in the event of a CEO change.
Lion declined to comment.
American Apparel has no immediate plans to pursue a sale of the company, according to a source close to the board.
Nevertheless, banking sources said the company appears to be primping itself for such a possibility with the hire of a bank and the ouster of Charney.