'Dr. Fad' Emerges as FAO Schwarz Bidder

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Toy entrepreneur Ken Hakuta said yesterday that he is negotiating to buy struggling FAO Schwarz, which is in Chapter 11 bankruptcy along with its parent company FAO Inc.


Hakuta, who is known as "Dr. Fad," issued a press release saying he is being advised by Peter J. Solomon Co. However, Diane Coffey, managing director of Peter J. Solomon Co., New York, said her firm doesn't represent Hakuta. Also, she said Solomon "is looking at FAO" but declined to elaborate.


Hakuta, who is president of Tradex Corp., Washington, a holding company that includes his toy businesses, said he thinks Solomon "has much bigger players than me" and chose Morrison & Foerster, New York, as his new adviser. Hakuta made his fortune by introducing Wacky WallWalkers to the United States.


"I think there's a great opportunity with a very badly utilized trade name," he said. "If we can refocus it down to three stores -- in New York, Boston and maybe Los Angeles or Las Vegas. What I want to do is not try to be like the high-end KB Toys in the mall but ... focus on creativity toys and high-quality products.


"We have to wait for the owners of the name, which is the Schwarz Family Foundation, to get the name back. Right now, they have licensed the name, so we would have to wait until the name reverts back to the family foundation. It could be as early as next week or as late as the end of January."


Hakuta's plan would include licensing the name, re-signing leases and buying some of the inventory along with reopening stores.


"The whole chain, as it is, is unsalvageable and bleeding too much money," he said. "The licensing fee should be reasonable. I think we're looking at, depending on sales, maybe $3 million per year ... [and] about $20 million to the various parties involved [as well as for] buying inventory and store refurbishing. Zany Brainy and The Right Start are not part of this."


He described potential hurdles as including credibility and finding the right management team.


"[There is] skepticism by vendors who have been burned," he said. "The creditors are a 'Who's Who' of the toy business. We will have to convince them that we will pay them and that it's a brand-new business."


Hakuta said catalogs could be part of his marketing mix.


"We might do seasonal catalogs throughout the year, maybe two per year," he said.


Hakuta's "Dr. Fad Show" showcased kids' inventions and was syndicated nationally from 1987 to 1993.


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