American Apparel Inc. and Endeavor Acquisition Corp. have signed a definitive merger agreement in which Endeavor will acquire American Apparel and its affiliated subsidiaries for up to 32,258,065 shares of restricted Endeavor stock. Endeavor will also assume up to $110 million of net debt outstanding, create a one-time merger bonus pool of $2.5 million and reserve up to approximately 2.7 million shares of additional Endeavor stock under a plan to be made available for issuance to American Apparel employees.
The combined company will operate as American Apparel and is expected to trade publicly on the American Stock Exchange or another national stock exchange and will remain headquartered in downtown Los Angeles. Founder and Chief Executive Officer of American Apparel Dov Charney will remain CEO, while core members of the management team responsible for American Apparels strong growth will also remain with the company.
American Apparel has the capacity to produce more than 1 million T-shirts per week at its Los Angeles manufacturing facilities. There are currently 143 American Apparel retail locations in 11 countries worldwide. For the fiscal year ending Dec. 31, 2006, American Apparel is expected to generate sales of approximately $275 million and EBITDA of approximately $30 million. Sales and EBITDA profits have expanded nearly eight-fold since American Apparels 2002 fiscal year with consistent double-digit EBITDA margins from combined wholesale and retail sales.
“This is an exciting time for American Apparel acquiring the necessary financial foundation will give us the opportunity to realize our bigger dreams,” said Dov Charney, American Apparel Founder and CEO. “By leveraging art, technology and design, we will continue to bring people clothes they love to wear. This transaction and the infusion of substantial capital from Endeavor will allow American Apparel to capitalize on the many opportunities in front of us ranging from improving our manufacturing processes to implementing our global growth plans,” said Charney.
“American Apparel is a unique company in the apparel manufacturing and retailing industry with a visionary leader, passionate employees and loyal customers. Its cutting-edge brand building efforts and vertically-integrated made in downtown Los Angeles operation have created significant brand awareness and a cult status worldwide,” said Eric Watson, Chairman of Endeavor Acquisition Corporation.
“American Apparel has a solid top-line strategy with good operating margins and significant expansion potential of its domestic and international store count,” said Jonathan Ledecky, President of Endeavor Acquisition Corporation. “We look forward to working with the dedicated and determined American Apparel workforce to help the Company achieve growth through the access to capital this transaction provides.”
“We have a special culture and ethos at American Apparel including a commitment to excellence. I am very excited about sharing my potential good fortune with my fellow employees as well as providing our millions of loyal customers the opportunity to become shareholders through this potential merger,” said Charney.
As part of the agreement, Mr. Charney will receive up to approximately 32,258,065 million shares of restricted Endeavor stock, subject to an escrow agreement of up to approximately 8.1 million shares to secure certain indemnity obligations of American Apparel. This contemplates Mr. Charney fulfilling his obligation to purchase the shares of another American Apparel stockholder for $60 million prior to the closing of the transaction. Under this scenario, Endeavor will have approximately $120 million of capital available for American Apparel. If Mr. Charney fails to complete the aforementioned purchase, Endeavor will purchase those shares for $60 million in cash and Mr. Charney will forfeit approximately 7.7 million shares while the combined entity will continue to be funded with over $60 million of equity capital to further its operations. Under all of the above conditions, Mr. Charney has agreed to a 100 percent lock-up of his Endeavor shares for a period of not less than 36 months following the consummation of the acquisition of American Apparel by Endeavor.
The proposed transaction is subject to Endeavor receiving an opinion from an independent investment banking firm that the transaction is fair to Endeavors shareholders from a financial perspective, Endeavor receiving shareholder approval of the transaction, customary closing conditions, including receipt of an acceptable 2006 audited financial statement, and various regulatory approvals. The transaction is expected to close during the summer of 2007.
