(Reuters) - American Apparel's board believes a bid by Irving Place Capital to buy the retailer for up to $1.40 per share is far too low and any takeover offer should be "several multiples" higher, a source familiar with the board's thinking said.

While the board has yet to evaluate the bid formally and is not likely to reach a decision until early January, it is not actively soliciting offers, the source told Reuters on Monday.

With a new chief executive in place, the retailer -- known for its provocative clothing ads -- is focused on raising sales and cutting costs after a battle to fire its founding chief Dov Charney ended last week. American Apparel suspended Charney six months earlier for allegedly misusing company funds and helping spread nude photos of a former employee on the Internet.

"This is the worst time imaginable to sell the company as it is on the verge of turning around and realizing its true value," the source said. "For us to seriously consider an offer, it would have to be several multiples of what Irving Place is offering."

American Apparel has chosen an investment bank to help evaluate takeover bids, although the source and a second person familiar with the matter declined to name the bank. It is not Peter J. Solomon, a boutique firm that the retailer hired this summer to provide it access to capital, the first source said.

Irving Place Capital is the only recent party to bid on the company to date. Its offer of $1.30 to $1.40 per share would value American Apparel at up to $244.7 million, based on Thomson Reuters I/B/E/S.

The board will focus on this number as it formally evaluates the proposal, but it also must review caveats to the deal, which include that American Apparel must reach an agreement with Charney and must continue to receive funds from lenders, the first source said.

The board fears that Charney may sue the company for his dismissal but believes it will prevail in that event, according to the source.

On Sunday, the company announced a one-year shareholder rights plan, or "poison pill," to prevent a rapid takeover through stock purchases, triggered when a party amasses a 10 percent stake in the retailer.

The plan is not intended to deter bids to buy the company, which shareholders have the right to review without being rushed, American Apparel said.

"We don't want to be stampeded into doing something that is not in the company's interest," the source added.

Charney currently has the largest stake in American Apparel at about 43 percent, although a hedge fund known as Standard General controls this as collateral on a loan.

American Apparel also said Monday that Colleen Brown will replace Allan Mayer and David Danziger as the board's sole chairman, giving the board its first female chairman ever. American Apparel said last week that Paula Schneider would become the company's first female chief executive, starting Jan. 5.

The stock rose about 6.5 percent to close at $1.14 on Monday.