Zany Brainy Bought By Investment Group

Zany Brainy, the 10-year-old children's multimedia retailer, has been purchased by Waterton Management, a Los Angeles investment company, for $115 million. The deal, which awaits Delaware Bankruptcy Court approval, would allow Zany to recover from the Chapter 11 bankruptcy protection it filed for on May 15. Initially, the money will go to pay off the remainder of a $115-million debtor-in-possession loan from Wells Fargo Retail Finance that allowed the company to keep the stores running through the bankruptcy. With the remaining funds, creditors will receive 20 cents per each dollar owed; shareholders will not receive any payment.

Zany has struggled since going public in late 1999 and acquiring rival Noodle Kidoodle for $40 million in May 2000. Earlier this year, the company defaulted on a $115-million loan from its bank, First Union Corp., and was later delisted from the Nasdaq. Rapid growth, including the integration of the 60 Noodle Kidoodle stores and the opening of 27 new Zany Brainys, caused a cash crunch that led to the bankruptcy.

In reaction to the purchase, Kenneth J. Abdalla, managing member of Waterton Management, said, "Zany Brainy's Chapter 11 filing was about liquidity. Zany Brainy has a strong brand and excellent store locations. We see the opportunity to build on Zany Brainy's focus and become an even greater force in the marketplace."

Under the agreement, Zany does not expect to close any stores, does not anticipate layoffs and will retain the same management, including CEO Thomas Vellios.