(CN) - With American Apparel newly bankrupt, a shareholder class action blames the retailer's corporate overlords for rejecting a lucrative merger offer last year.
Though Standard General "was a stranger to" American Apparel just 18 months, the ouster of founding CEO Dov Charney and other corporate maneuvers quickly put the investment firm at the helm, according to the complaint in Manhattan Supreme Court.
American Apparel shareholder Kenneth Vaughan says shares were trading at just 69 cents a share in fall 2014 when "a third party extended an unsolicited offer to acquire the outstanding shares of the company for $1.40 per share - a premium of 104% to shareholders."
Vaughan says self-interest motivated Standard General, as American Apparel's new controlling shareholder, to torpedo the deal.
"SG stood to gain more from a weakened or a bankrupt American Apparel than it did from a third-party sale," the complaint states, abbreviating the investment firm's name.
Vaughan says Standard General got its wish.
"The failure of the company to consider the acquisition offer deprived its shareholders of the opportunity to sell their shares at a sizeable profit," the Nov. 25 complaint states. "Instead, American Apparel filed for bankruptcy on October 5, 2015, leaving the shareholders with nothing."
Vaughan says "any third-party offer was doomed for shareholders and, along with it, any opportunity to salvage their investments."
"Potential suitors were asked to sign oppressive and non-commercially reasonable non-disclosure agreements, which included a provision preventing them from speaking with Charney, whose intimate knowledge of the company would be the first place any suitor would start in evaluating the company," the complaint states.
Plus, the new board adopted a "poison pill" that raised the cost of acquisition by about $573 million and banned demands for special shareholder meetings, according to the complaint.
Meanwhile, American Apparel's largest unsecured creditor had allegedly accelerated the payment of an approximately $9.9 million loan, "pursuant to a provision triggered by Charney's ouster," according to the complaint.
That creditor, Lion Capital (Guernsey) II, is not a party to the action.
Vaughan says Standard General bought that loan on July 16, 2015, with "substantial" annual interest payments of about $1.7 million.
When Standard General provided the remaining $15 million to American Apparel in March, it did so at an annual interest of 14 percent, or about $2.1 million, according to the complaint.
This meant that Standard General "stood to collect nearly $4 million in annual interest payments" despite "miniscule direct equity," the complaint continues.
Vaughan seeks to represent a class alleging breach of fiduciary duty and unjust enrichment. He is represented by Robert Harwood with Harwood Feffer.
Raymond DiCamillo, an attorney for Standard General in Wilmington, Del., has not returned an email seeking comment.
Standard General sued Charney in the Delaware Chancery Court on July 13, alleging that the embattled former executive keeps interfering with operations and lied to bolster his holdings in American Apparel stock.
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