Overhaul slated for Child World

Discount Store News, July 22, 1991

Overhaul Slated for Child World

AVON, Mass. -- Child World is focusing on improved marketing and merchandising strategies to return the beleaguered chain to profitability.

The toy chain's two chief executives, W. John Devine and Ronald Tuchman, also intend to improve Child World's infrastructure now that the 150-unit toy chain is owned by Avon Investors Limited Partnership.

"We intend to build and improve the company's infrastructure and market position through operating efficiencies, increased advertising and marketing in a policy of everyday low prices, with improved merchandise selection and availability," said Tuchman, chief operating officer.

After a year-long effort to sell the chain, Child World was finally sold by CNC Holdings June 27 to an investment group led by Avon, an entity created by the Thomas H. Lee Co.

As with CNC Holdings, Avon owns just 82% of the chain. The remaining 18% is publicly held. The balance of ownership could change substantially over time should Child World successfully restructure itself according to its plan and if all subsequent warrants, options and conversion rights granted in the transaction are exercised.

According to Child World, should plans work out, Avon will wind up with a 36.58% interest in Child World. The banks or their affiliates would own 21.03%, while management--principally Devine and Tuchman--would hold 17.5%. The remaining stock would be held by the trade, public and Executive Life Insurance.

The sale, whose total value has not been disclosed, includes a restructuring of the toy chain's trade and bank debt and a comprehensive repayment schedule to those sources.

With CNC Holdings, the deal was largely a debt swap.

The restructuring of the trade debt provides that all claims will be paid in full over time. When the sale was completed June 27, vendors were sent checks for 30% of what was owed them. This check will be followed by another one in 30 days for 6.8% of their outstanding balances. The rest of what's owed vendors will be paid back on a slightly altered schedule from what was announced previous to Avon's acquisition.

The terms of the bank restructuring called for CNC Holdings to assume $30 million in Child World's senior bank debt. Child World also repaid its banks $47 million. The outstanding balance--which has been paid down in incremental amounts prior to the deal so no figure is available--will be paid under a new facility, including $100 million in working capital, with an extended maturity.

The transaction is the result of a long effort by CNC Holdings to sell the beleagured chain. In the past year, two previous efforts to sell Child World collapsed under depressed sales and earnings, the overall economy and insufficient financing. Also, president Peter Hayes left.

Through it all, Child World has kept its stores open, although it has shuttered 32 units since the beginning of the year.