Knobias Clip Report (07-12-2008) KIDS
Submitted By Knobias ClipReport
KIDS: Chairman Discusses $25M Financing Agreement w/D. E. Shaw Group
By Fain Hughes, fhughes@knobias.com
The Parent Company (KIDS) hosted a conference call on Monday to discuss the completion of a multi-year financing agreement with an entity in the D. E. Shaw group. The agreement provides up to $25 million of junior secured debt financing, with $10 million made immediately available to The Parent Company. No portion of the debt facility is convertible into equity and only the first tranche of $10 million is accompanied with an equity warrant component.
Chairman of the Board, John Textor, explained in the conference call, “We needed a capital structure to address year-round concerns and also to fund several new business initiatives that we wanted to get off the ground.”
“Shaw, a major shareholder of our company, was frustrated that the stock price did not reflect the fundamental value of the company, and they were not willing to see the company take the dilution from a market-priced equity or debt convert deal. So, we closed a deal with extremely attractive terms in an enviroment where deals this size are not given to companies our size that are struggling with shareholder value.”
Mr. Textor added, “There is no conversion right tied to this financing. The warrants were extremely light compared to the money. The total dilution to the company post-closing is 11% against a $25 million facility. Anywhere else in the PIPE or convert market, we would have seen dilution in the 35% to 40% range. This agreement in this enviroment is remarkable. If anyone doubted Shaw’s committment to the company, this should ease their fears.”
“We are still very seasonally inbalanced. There are a number of private companies that we have spoken to that would like to consider combining with us. These companies are consistent with our customer message and can fill-up our warehouse in the off months. There is a tremendous leverage in this model. Strategically, we don’t think this is a good time to sell ourselves. We owe it to our sharholders to build demand.
He noted, “We expect the launch of Toys.com later in the year, prior to the holiday season. This year is an important inflection year for us. We expect this to be a meaningful year for revenue growth and a full cycle of profitability.”
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