American Apparel's 'made in U.S.' heritage uncertain after deal

Source : REUTERS
Last Updated: Wed, Jan 11, 2017 02:22 hrs

By Allison Lampert and Jessica DiNapoli

MONTREAL/NEW YORK (Reuters) - American Apparel LLC's made-in-the U.S. heritage is uncertain, after Canadian apparel maker Gildan Activewear Inc won a bankruptcy auction to acquire the edgy fashion retailer for about $88 million in cash.

Gildan said on Tuesday it will buy manufacturing equipment and intellectual property rights related to American Apparel, but the Canadian company did not assume the leases of its California manufacturing plants, fuelling questions over where the clothing will be produced.

Reuters reported late on Monday that Gildan had won the bankruptcy auction, which also attracted other bidders such as California-based apparel maker Next Level Apparel and had garnered interest from Amazon.com Inc .

Gildan had originally planned to take some of American Apparel's manufacturing plants, but ultimately opted against it.

Garry Bell, a Gildan spokesman, said the firm would decide where to make the clothing when it completes its integration plan for the brand.

"We felt it was best to not assume these leases while we worked through that plan,” he said, adding details will be outlined Feb. 23.

Gildan, which has yarn-spinning and distribution facilities in the United States and is the largest domestic consumer of U.S.-grown cotton, has no "apprehension about investing in the United States," Bell said.

However, close to 90 percent of Gildan's 42,000 employees are in low-cost Caribbean and Central American countries, and the company does not manufacture clothes other than socks in the United States.

Keeping jobs in the United States has become a hot-button political issue since the election of Donald Trump, who campaigned on stopping manufacturing jobs from moving overseas.

Approximately 3,500 American Apparel employees have received notices that they could be laid off as soon as this month, according to public notices posted in California.

An American Apparel spokeswoman said on Tuesday that "the manufacturing facilities were always a part of negotiations, and any decision by the buyer to not assume these operations is at their discretion."

Gildan, whose branded apparel and printwear basics competes with Hanes Brands Inc , has also said it will not buy any of the 110 American Apparel retail stores.

Analysts said Gildan's focus on just the brand, coupled with its ability to control costs, would benefit American Apparel which spent heavily on its stores and racy marketing campaigns.

“Gildan is very good at sticking to what they are good at,” said an analyst who asked not to be identified. “They know they have no business running retail stores or being a marketing machine.”

American Apparel filed its second Chapter 11 in November with about $177 million in debt after the failure of a turnaround plan. It filed for its first Chapter 11 in October 2015, and emerged from bankruptcy early last year.

The deal, which is subject to approval from a bankruptcy court on Thursday, pushed Gildan shares up 2 percent in Toronto and New York on Tuesday afternoon.

Guggenheim Securities LLC is acting as Gildan's financial adviser, while Sullivan and Cromwell LLP are providing legal advice.

(Additional reporting by Siddharth Cavale and Komal Khettry in Bengaluru; Editing by Shounak Dasgupta and Matthew Lewis)



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