New World’s Offer to Buy Kenner Parker Hits a Snag

New World Entertainment suffered a legal setback Friday when a Massachusetts judge halted the firm’s hostile bid for Beverly, Mass.-based Kenner Parker Toys.

Superior Court Justice John P. Forte ruled that New World had violated Massachusetts’ 11-year-old, but little-used, anti-takeover law. Forte issued a preliminary injunction barring New World from acquiring any more Kenner Parker shares on the open market through its $47-a-share tender offer or by any other means.

New World immediately asked the Massachusetts Appeals Court to lift the judge’s order and let its bid continue. But late Friday night in Boston, Appeals Court Justice Raya Dreben refused to lift the ban on New World’s acquisition of stock through the open market or its tender offer, said Jim Lyons, an attorney for New World.

Portion Overturned

Dreben, however, overturned the portion of Forte’s decision that barred New World from “taking any other act or step designed to acquire control of Kenner Parker Toys.” That apparently leaves the door open for the company to negotiate directly with Kenner Parker.

G. Neal Ryland chief financial officer for Kenner Parker, said he was pleased by Forte’s decision, adding that a trial on the issue could last a year. Kenner Parker had asked Forte to halt the takeover bid.

Neither Kenner Parker nor New World officials could be reached for comment after the appeals court decision.

The Massachusetts anti-takeover law bars companies that buy more than 5% of a company’s stock without a public announcement from launching a hostile takeover in the following 12 months. New World has argued that the law violates free commerce guarantees of the U.S. Constitution.

Following the announcement of Forte’s decision, Kenner Parker’s stock closed down 50 cents to $48.75 on heavy New York Stock Exchange trading of 503,500 shares. New World shares closed at $10, up 25 cents on the American Stock Exchange.

In a filing on Tuesday with the Securities and Exchange Commission, Kenner Parker said it is considering a leveraged buyout, a friendly merger with another company or a restructuring or recapitalization. Asked whether Kenner Parker would continue to pursue these options as actively, Ryland declined to comment but noted that the company has not amended the SEC filing.

New World, a maker of low-budget films and television production company and the nation’s largest comic book publisher, has offered $47 a share or a total of $512 million for all outstanding shares of Kenner Parker, the nation’s third-largest toy maker and producer of Play-Doh and Monopoly. New World disclosed on Thursday in a filing with the SEC that the total cost of buying Kenner Parker Toys would be about $570 million, including fees for attorneys and investment bankers.

Own Funds

In the same filing, New World also said it planned to pay $125 million of its own funds, including at least $59 million in cash, and would finance the balance of the transaction through the issue of additional debt or securities.

New World seems to have a sizeable reserve of readily disposable investments. As of June 30, it said it had $151 million in cash and marketable securities, despite having bought three companies last year and acquired a majority interest in another. In 1985 and 1986, the company issued debt totaling $265 million.