A highly leveraged deal:
public.wsj.com
August 17, 2001
Right Start Plans to Acquire Zany Brainy
With Private Investor in Cash-Stock Deal
By Sydney B. Leavens
Staff Reporter of The Wall Street Journal
When it comes to the educational-toy industry, fittingly enough,
it looks like the tortoise has beaten the hare.
Right Start Inc., a 68-store chain based in Westlake Village,
Calif., watched from the sidelines for two years as its
competitor, Zany Brainy Inc., hopped into rapid expansions and
an ambitious acquisition that put it into Chapter 11
bankruptcy protection in May.
Thursday, Right Start announced plans to acquire Zany Brainy
and its 187 stores for $11.7 million in cash, 1.1 million common
shares and the assumption of about $85 million of Zany's debt.
Right Start shares surged $1.10, or 44%, to $3.58 in 4 p.m.
Nasdaq Stock Market trading Thursday.
The combination of Right Start, which specializes in
developmental products for infants and toddlers, and Zany
Brainy, which targets children ages four to 12, "makes sense,"
said Jerry Welch, Right Start's chief executive. "The lifetime
value of the customer is extended. We can continue the
relationship ... from birth to age 12."
The acquisition brings to a close Zany Brainy's short but blazing
life as a public company. The 10-year-old educational-toy
maker, which in 1998 described itself as "America's
fastest-growing multimedia educational superstore for kids,"
went public in 1999 and last year spent about $20 million to
acquire rival Noodle Kidoodle Inc. Zany Brainy, based in King
of Prussia, Pa., found itself in a losing struggle to absorb
Noodle Kidoodle's inventory and 60 stores amid blistering
competition from big toy retailers and online upstarts.
Los Angeles private investment firm Waterton Management
LLC said last month it would acquire Zany Brainy, but in recent
weeks, its management partners became convinced they would
have better luck if they joined forces with Right Start. Under the
deal, Waterton will invest $20 million in exchange for a 48%
diluted interest in Right Start's Nasdaq-listed shares.
With so much consolidation among educational-toy purveyors,
"it's a great time to build a national brand," said Waterton
managing partner Kenneth Abdalla.
Right Start said it has learned from the mistakes Zany Brainy
made in handling its acquisition. While Zany Brainy immediately
sought to consolidate management and phase out Noodle
Kidoodle's brand name last summer, Right Start plans to take
advantage of what Mr. Welch called a "valuable" brand name.
Plans include installing 2,000-square-foot Right Start
"boutiques" within Zany Brainy's 10,000- square-foot stores.
Right Start expects to renegotiate rents on Zany Brainy stores
once the company emerges from bankruptcy protection, and to
close about 12 of them.
All parties say the deal, subject to shareholder and
bankruptcy-court approval, should close before Sept. 5. |
