Roy Disney Firm Scraps Plan to Buy Child World

A partnership formed by Roy E. Disney’s Shamrock Holdings Inc. has abandoned plans to acquire Child World Inc., triggering a share selloff Friday that wiped out nearly half the stock value of the nation’s No. 2 toy retailer.

Child World was to have been the first purchase by Trefoil Capital Investors L.P., which Burbank-based Shamrock formed last summer to invest in troubled companies.

But Trefoil’s decision now means the partnership, which has raised $450 million for such deals, must look elsewhere to make its first public investment.

And it means that Child World’s controlling stockholder, CNC Holding Corp., must put the ailing toy chain back on the auction block and hope that the slowing economy does not inflict further damage on Child World before it can be sold.

Trefoil quietly made its announcement on Thanksgiving Day, when financial markets were closed. It did not explain why it backed out.

But when the markets reopened Friday, Child World plunged $4.75 a share, to $5, in over-the-counter trading.

Stanley P. Gold, head of Trefoil’s general partner and Shamrock’s president, declined comment.

But sources familiar with the deal said Child World’s worsening condition, together with the growing sluggishness of the retail environment generally, prompted Trefoil to get out.

Child World, based in Avon, Mass., operates 176 stores in 31 states. The company, which opened its first Southern California store in Torrance last month, is the nation’s No. 2 toy retailer, trailing Toys ‘R Us Inc.

Trefoil, which launched its offer last July, had planned to acquire Child World in two steps.

First, it was to buy the 82% of Child World owned by Cleveland-based CNC, which began trying to unload the chain last March. CNC is the former Cole National Corp., which was taken private in a leveraged buyout in 1984; the Child World sale was to help CNC pare its substantial debt.

Precise terms were not disclosed, but Trefoil was expected to avoid any cash outlay by purchasing CNC’s stake in exchange for debt securities valued between $125 million and $150 million.

In the second step, Trefoil was to buy the remaining 18% of Child World owned by the public for $14 a share cash, or $28.3 million.

But in recent weeks, Child World’s stock traded well below that price--closing at $9.75 a share as recently as Wednesday--reflecting speculation on Wall Street that Trefoil might bail out.

Trefoil previously had warned that its offer had several conditions, including the “absence of any material adverse change in Child World’s business,” and Trefoil’s ability to get new financing for the chain.

Five weeks after Trefoil announced its offer, Child World reported a $16-million loss on sales of $280.9 million for the six months ended Aug. 4, compared to a loss of $10.3 million on sales of $268.3 million a year earlier.

Trefoil apparently found Child World’s health wanting, despite its plan to buy the company with relatively little cash.

Jeffrey A. Cole, CNC’s chief executive and Child World’s chairman, did not return telephone calls requesting comment.

Trefoil’s Gold previously had expressed confidence about turning around Child World, largely because Shamrock’s other retailing experience.

Shamrock’s holdings include the 71-store Music Plus chain of music-video stores in Southern California and the 140-outlet Sound Warehouse chain based in Dallas. It also owns three television stations and 15 radio stations.