American Apparel Inc. (NYSEMKT:APP) adopted a poison-pill strategy Saturday to prevent former CEO Dov Charney from seizing control of the company.
Its board fired Charney June 18, saying in a U.S. Securities and Exchange Commission filing that the "decision to replace Mr. Charney grew out of an ongoing investigation into alleged misconduct." Subsequent media reports indicated the alleged misconduct encompassed both purported financial mismanagement and sexual-harassment charges.
The firm, with total assets of about $331.49 million and total liabilities of about $385.16 million on March 31, said the poison pill would be triggered if anyone owning 15 percent or more of its stock sought to increase his or her stake, the Financial Times reported.
"The [stockholder] rights plan is designed to limit the ability of any person or group, including Dov Charney, to seize control of the company without appropriately compensating all American Apparel shareholders," the company said in a statement. "It is intended to provide the board of directors and stockholders with time to make informed judgments."
The firm said the plan is not meant "to prevent or deter takeover bids that offer fair treatment and value to all stockholders. Rather, the rights plan is intended to protect stockholders from any threat of creeping control."
An SEC filing made by Charney Friday indicates he wants to acquire more than 10 percent of American Apparel's outstanding shares. Charney currently owns 27.2 percent of the company, its founder noted in the filing.
Word of the action sent American Apparel's share price up about 30 percent in the final minutes of trading Friday. It closed at 97 cents.
Charney's firing triggered an immediate request for repayment from Lion Capital, to which American Apparel owes $10 million. The company has lost an estimated $270 million in the past four years and has about $214.59 million in long-term debt.
Charney has alleged wrongful termination and filed an arbitration petition.