Judge Nixes FAO's Deal For Right Start

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Christmas was no time for celebration at FAO Inc.'s Right Start operation.


A U.S. Bankruptcy Court judge for the District of Massachusetts' Western District in Worcester, MA, agreed with mall owners Dec. 23 who said Right Start's would-be purchaser didn't have sufficient financing.


Bankrupt FAO Inc. received a $6.25 million bid from Hancock Park, a Los Angeles-based private equity firm, but, following the hearing, Judge Joel B. Rosenthal was dissatisfied with the finances of Right Start Acquisition Corp., which was created by Hancock Park.


"There is virtually no evidence in this record that they could make it to the fourth quarter of next year," Rosenthal said, according to The Telegram & Gazette of Worcester.


The newspaper also reported that according to FAO officials and lawyers for creditors, the ruling will result in liquidation sales at Right Start stores and the elimination of 300 workers.


"Deals with financing contingencies always have a greater element of risk than those that don't," said Sanjay Chadda, who is a vice president at Petsky Prunier, New York, an investment bank that focuses on mergers and acquisitions among direct marketing firms. "In this case, the judge wasn't satisfied with the finances of Right Start Acquisition Corp. and the ongoing sustainability of the business under what would have been its new ownership."


A call to an FAO spokesman was not returned Dec. 24.


The Right Start includes 38 stores. Its Web site on Dec. 24 said that Jan. 11 is the last day to redeem gift cards.


FAO Schwarz's situation wasn't among the parameters of the Dec. 23 hearing.


The Associated Press reported that FAO attorney David W. Levene has said the company received a substantial offer for the FAO Schwarz name and its Fifth Avenue store in New York. However, he declined to comment about that offer Dec. 23.


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