Lion Capital to push American apparel to consider sale

Lion Capital, the investment firm that formerly backed American Apparel Inc. (APP), urged the clothing chain to consider strategic alternatives such as a sale of the company, a person with knowledge of the matter said.

American Apparel received a letter from Lion on Sunday asking the retailer to form a special committee to review its options, said the person, who asked not to be identified because the matter is private. Lion also said it plans to name founding partner Lyndon Lea to American Apparel's board instead of previous nominee Gene Montesano, one of the entrepreneurs behind Lucky Brand Jeans, the person said.

The move adds pressure to a company already reeling from an acrimonious split with Dov Charney, its founder and former chief executive officer. Lion has been a longtime ally of the controversial Charney, who is trying to reassert his influence at the retail chain after he was fired this month.

Lion, which already has another director at American Apparel, has the power to appoint board members under an earlier financing agreement. The Wall Street Journal previously reported on the letter, citing unidentified people.

Charney, 45, is working with private-equity firm Irving Place Capital on a deal to buy American Apparel that would involve the executive returning to American Apparel in some capacity, a person with knowledge of the matter said earlier. American Apparel's board confirmed last week it received a takeover proposal for as much as $1.40 a share, though it said it remains focused on turning the company around.

The board views the bid as significantly too low for a retailer on the verge of a comeback, one of the person said. No other bidders have emerged, and the board is unlikely to form a special committee on the basis of the offer supported by Charney, the person said. American Apparel, based in Los Angeles, declined to comment. Lion didn't respond to a request for comment.