empire, which has been sinking
the crush of nearly t400 million in debt,
HAS ÏHIS PROBTEII CHI1D
IEARI|ED tTS lESSolt?
Kinder-Care restructures to cut debt and boost investor confrdence
Biiåii1i'å':f frr'"'åirrfr
past 2Yz years, tùe founder and chair-
man of Kinder-Care Inc. has amassed an
odd assorumenl of side businesses in-
cluding fwo Florida thrifüs, a specialty
ret¿il chain, and a deer-hunter's maga-
zine called Buckmo,sters,
Mendel's disjointed buying spree
hasn't done much for inveslors, who
have watched thei¡ sha¡es tumble 59%
since 198?. In April, Kinder-Care's larg-
est shareholder, SunBank, sold off its
6.9% st¿ke in disgust. "It was a signiñ.
cantly unrewarding investment," says
Anthony R. Gray, president of Sun-
Bank's investment group,
But, now shareholders are being lis.
tened to-at ìeast a bit. Amid persistent
rumors of a t¿keover by Robert M. Bass
of Texas, on May 29, the Montgomery
(Ala.)-based Kinder-Care unveiled a com-
plex $215 million restructuring plan that
will spin off its remaining 8?% stake
in its child-care subsidiary, which
trades separately as Kinder-Care læarn.\
at Kinder-Care but will say on as chair.
man of Learning Centers. Wall Street
pardy agrees: While shares of Kinder-
Care hovered around 8, Iæarning Cen-
fers' stock jumped 33%, lo 67¡ (chart).
LrcHrER ¡.oro. The restructuring wasn't
all Mendel's idea. The catalyst behind his
maneuver is lodest¿r Group, a Lth-year-
old Nerv York investment fi¡m headed
by Kenneth H. Miller, former vicschair-
man of Merrill Lynch Capital M
Inc. After the firm recently built a t989
3 4.37., st¿kein Kinder-Care, man-
agement quickly acceded to Lode- .
s!.ar's lestructuring pìan: The inves-
tors will guarantee a $161 million
2g euS[.tESS \^/EEK/JutlE lZ. l9B9
rights offering for Kinder-Care stock
owners, who rvill get hâlf a share in
Learning Centers for each share of
Kinder-Care. l¿dest¿r will also buy 3.5
million shares of
Learning Centers at
$5.õ0 apiece and will take two seats on
its board.
lodestar, which until now has only
made minor inves[ments in several
smaller companies, should wind up with
more than õ7, of Kinder-Care and over
I37o of. lcarning Centers. The frrm's
principals declined to comment on their
plans but have said before that they aim
to invest in companies for three or four
years before selling out. Some on lVall
Street believe Lodestar $rants to rein in
Kinder-Care's diversification and may
even prod the company to sell off its
laggard divisions. Others think it may
take læarning Centers privaæ.
l¡destar's cash infusion wil] come
none too soon for Mendel's $985 million
KI}IDER.CARE'S TWO STOCKS
.ù*;âtì
kù
.rá*a!*-**
fitot¡rH-${D
.À
0rrr:
or¡u!
mostly at floating ratps. Learning Cen-
ters' frrst-quarter interest tab of $12 mil-
lion halved its operaring income to $11
million. Learning Centers recently
capped its exposure lhrough interest-
rate swaps and is norv negotiating to
secure a saleleaseback of its day-care
properties. C¡mbined with the rights of-
fering, those meâsures should reduce its
obligations from a huge 3497o of equity
to 130%, estimat¿s Jeffrey D. Adams, an
analyst at PaineïVebber Inc.
snLL ExAroRcD. The spinoft may bol-
ster the day*are centers' prospects, but,
tie restructuring could leave lhe remain-
ing companies more vulnerable than
ever to intêrest-rat€ srvings: ProÂts
from Kinder-Care's American Savings &
l¿an Assn.-which has been whipsawed
by rising short term rates-alen't cover-
ing the int¿rest from its $150 million
acquisition in 1988. As a result, Kinder-
Care's first-quarter earnings plunged to
$458,000, or 1ç per share vs. 26C last
year, It would have repofted a loss if it
hadn't booked ?4 per share from its
stake in læarning Centers. "What this
stock still boils down to is an interest-
rate play," says Napoleon H. Overton,
an analyst at Morgan Keegan & Co.
Still, Kinder-Care's new chairman,
Richard J. Grassgreen, remains enam-
ored of the company's fortunes. "Our
specialty retailing is poised for the same
growth as day care," says Grassgreen,
the former president. He may find it
cough to res¿ore conñdence along a jad-
ed Wall Street, but tàe restructuring
could make investors give Kinder-Care a
second look. Given its fall from grace,
that may be t̡e best it can hope for.
By Dean Foust in Atlantt
KINDTR.CART
KINOTR.CART
I.IÀRNING CTNTTRS
(oslltG PRtcts
0t( JAil.
Ílll0tl'Ott lllc. rlll0tS.Ott tU¡lllllc
iltc. t¡t0ct ilrt0ur¡|roil lTífr¡t rrc