Federal judge rejects buyer for FAO's Right Start stores

Concern raised on funding to operate the business

December 25, 2003|By BLOOMBERG NEWS

NEW YORK - FAO Inc., which is trying to sell its Right Start infant and toddler toy stores to keep them from being closed, had a federal judge reject a prospective buyer on concern that it lacked adequate funding to operate the stores.

Judge Joel Rosenthal rejected Los Angeles-based private equity fund Hancock Park LP's proposal to buy Right Start at a court hearing Tuesday in Worcester, Mass. Jeffrey Meyers, a lawyer representing seven Right Start store landlords, said yesterday in an interview.

"We analyzed their financials," Meyers said. "We feel there's a chance this company isn't going to make it. We weren't given adequate assurance of future performance."

FAO filed for protection from creditors this month after moving away from specializing in exclusive toys amid competition from discounters who have slashed prices.

The company has said that it is talking to an undisclosed buyer for New York's flagship FAO Schwarz store and possibly some other assets.

Leases on more than 30 Right Start stores won't expire for at least two years, and Hancock wouldn't agree to put more money into Right Start Acquisition Corp., an entity Hancock created after the buyout proposal, or guarantee future lease payments, Meyers said.

FAO, based in King of Prussia, Pa., has said that it would close its 38 Right Start and 15 FAO Schwarz stores unless it can sell them. FAO is closing its 89 Zany Brainy stores.

David Levene, a lawyer representing FAO, and Paul Traub, an attorney who represents unsecured creditors, didn't return telephone calls seeking comment.

James Lynch, a clerk for the court in Massachusetts, didn't immediately return a call yesterday seeking comment.

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