The Right Start to buy FAO Schwarz

The sluggish economy isn’t slowing The Right Start in its quest to become a major player in the children’s specialty market. The $65 million children’s products cataloger/retailer agreed on Nov. 19 to buy $150 million toy cataloger/retailer FAO Schwarz for $55 million. The Right Start had acquired another toy retailer, Zany Brainy, on Sept. 6.

The acquisition of FAO Schwarz gives The Right Start coverage of virtually all children’s age brackets, says president Jerry Welch. The Right Start franchise sells items for newborns, infants, and toddlers; Zany Brainy specializes in toys for children ages 3-12, and FAO Schwarz covers the gamut.

While The Right Start plans to continue operating all three businesses separately, Welch says that the company will aggressively cross-promote all of the brands in all of the stores. In addition, the company plans to launch a full-fledged Zany Brainy catalog business next year. (Zany Brainy periodically mails a catalog designed to drive traffic to its stores and Website.) “We think there’s a void in the marketplace,” Welch says. “We’ll reevaluate certain matters with FAO coming on board, but will certainly have a Zany Brain catalog next year, probably in late spring.”

Welch estimates that combined sales of the three brands will be about $650 million in 2002, with Internet sales of approximately $30 million and catalog sales of another $30 million. As part of the deal, Dutch retailing company Vendex International NV, from which The Right Start is buying FAO Schwarz, will become a major shareholder of The Right Start. The Right Start has agreed to issue preferred stock convertible into 5 million common shares and an $18 million four-year note and to assume about $10 million in liabilities. The deal is expected to close in January.