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Specialty Toy Retailers Join Forces

April 24, 2000 GMT

NEW YORK (AP) _ Zany Brainy Inc. is buying rival toy chain Noodle Kidoodle Inc. in a $35 million deal that will unite the two largest retailers of specialty toys in the United States.

The deal announced Monday will create a 163-store chain under the Zany Brainy name selling a wide-range of educational toys. Combined sales topped more than $370 million last year.

Analysts called the merger a smart combination that will help strengthen Zany Brainy’s position against larger bricks-and-mortar toy stores and those that operate on the Internet.

``This deal makes a lot of sense because these chains have a complementary presence and overlap a lot in what they sell in their stores,″ said Richard Fradin, an analyst at Chicago-based William Blair & Co.

Both Zany Brainy and Noodle Kidoodle are known for their brightly colored stores filled with play areas so kids can try the toys before they buy. The chains also offer lots of in-store activities, such as readings from popular authors and software demonstrations.

Shelves are stocked mostly with toys that have an educational slant, including everything from kite-making kits to magic show sets.

Many items are made by small, lesser-known manufacturers. In fact, only about 30 percent of the products found at Zany Brainy overlap with the larger chains like Toys R Us.

Both chains pride themselves on top-notch customer service, staffing knowledgeable salespeople who have a special interest in children _ such as former teachers and librarians.

For a long time, both chains mostly considered mom-and-pop toy shops as their rivals. But in recent years, many mass-market chains and online toy shops have been putting some pressure on Zany Brainy and Noodle Kidoodle’s businesses.

Analysts said the deal will help the chains fend off their new _ and fast-growing _ competition.

For one, they can cut costs by slashing duplicate personnel, getting better deals on merchandise since they are buying for a larger number of stores and consolidating their online operations. The deal will also strengthen Zany Brainy’s position in New York, Florida, Michigan and Texas.

By the end of the year, the companies plan to add 27 new stores nationwide.

Under the agreement, 1.233 Zany Brainy shares will be exchanged for each Noodle Kidoodle share. The deal, which still needs shareholder and regulatory approval, is expected to close by the end of the second quarter.

Keith C. Spurgeon will remain chairman and chief executive of Zany Brainy, which was founded in 1991 in the Philadelphia suburb of Wynnewood.

Noodle Kidoodle’s chief executive, Stanley Greenman, will help with the integration of the two companies and serve on the Zany Brainy board of directors. Greenman was one of the founders of the 7-year-old Syosset, N.J.-based chain.

While Zany Brainy expects the deal to boost future earnings, the company said Monday that it expects its first-quarter loss to be bigger than expected due to a drop-off in sales of such hot products as Beanie Babies and Crazy Bones.

Noodle Kidoodle also said Monday that its losses will exceed those tallied in the first quarter last year.

Shares of Zany Brainy fell 62 1/2 cents, or nearly 15 percent, to $3.66 in afternoon trading on the Nasdaq Stock Market. Noodle Kidoodle shares rose 16 cents to $4.41, also on the Nasdaq.


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