As American Apparel's ousted boss Dov Charney steps up his unlikely campaign to get his job back, the executives now running the retailer are fighting to keep alive a company whose losses have totalled more than $250m (£147m) over the past five years.
Crucial to that fight is the London-based private equity firm Lion Capital and its co-founder Lyndon Lea, a polo-playing socialite who has backed the retailer's founder Mr Charney in the past.
Lion Capital is now demanding repayment of a $10m loan by 4 July, according to reports from New York, although American Apparel's board has said it is still negotiating with the private equity firm and other creditors.
Lion, whose investments have ranged from Jimmy Choo shoes to Findus fish fingers, would not comment on the reports that it is refusing to offer a waiver on the change of management clause on its loan.
In the past week, the men now running the company have insisted they are confident it can thrive without its flamboyant founder, whose sexual exploits over the years have commanded as much press as the risque advertising the chain uses to promote its clothes. Earlier this year, a video of him dancing naked in front of staff appeared online.
American Apparel has also hired Peter J Solomon, a firm specialising in recapitalisations, to make sure the retail chain has "adequate access to capital in the future at a reasonable cost". Its co-chairman, Allan Mayer, also said it can cover the Lion Capital loan or even refinance it,
Analysts said American Apparel – whose stock price has fallen from $15 in 2007 to 75 cents yesterday, giving it a stock market value of just $130m – is now ripe for a takeover by a private equity firm or a rival retailer.
"We are certainly not looking to sell the company," the co-chairman Mr Mayer said earlier this week. But he added: "If someone came and said they wanted to buy American Apparel for $10 per share, we'd be crazy to not listen." Some analysts have predicted a bid for American Apparel as low as $1.50 a share.
American Apparel's board replaced Mr Charney as chairman and said it would fire him "with cause" as chief executive on 18 June after it called in a law firm to conduct an inquiry into allegations he had misused company funds and allowed an employee to post online naked photographs of a woman who had tried to sue him.
Mr Charney, who saw his holding in the firm fall from 43 per cent to 27 per cent during a refinancing last year, said in a regulatory filing he believes his termination "is without merit" and that he "intends to contest it vigorously."
He has also has hired Hollywood power lawyer Patricia Glaser, who has represented celebrities like Conan O'Brien. Arbitration may be one potential solution to the stand off.
If not, the battle for control of American Apparel could become even uglier.
Whatever Mr Charney's next move, he knows he is up against it. Swiss investment firm FiveT Capital, which owns roughly 13 per cent of American Apparel and has been a supporter of Mr Charney, has indicated in interviews it may not back him in his fight.
What's more, the men who ousted Mr Charney are smart, shrewd – and they communicate well. So much so that Mr Mayer once co-authored a book called: Spin: How to Turn the Power of the Press to Your Advantage.Reuse content