Apr. 6--Universal International's recent announcement that it wants to more than double the size of its retail chain by acquiring a Texas retailer has stock market investors scratching their heads.
The New Hope-based closeout merchandise wholesaler and retailer is still working out its own financial problems. It sharply reined in its aggressive expansion plans late last year. Nevertheless, the company said it plans to buy the leases and inventory of Perry Brothers, a 90-store Lufkin, Texas-based retail chain. Universal said it feels the expansion will give it the "critical mass" to operate its retail chain profitably.
"Universal believes that the key to completing the transaction will be to find an equity investor willing to purchase a significant equity position in Universal," the company said in a prepared release issued earlier this week.
Universal said it was in the process of "contacting prospects and interviewing investment bankers to assist with the process."
Universal International would pay Perry $700,000 over seven years as well as 450,000 shares of its stock and assume or pay off its debt. The deal is contingent on Universal obtaining both equity and debt financing.
The Perry Brothers stores, all but two of which are in Texas, would be converted from its current "five-and-dime" variety store approach to Only Deals, Universal's closeout concept.
The deal comes as a bit of a surprise, given recent published statements by Universal's chief executive, Mark Ravich, that the company planned to scale back its expansion plans. As part of the third-quarter report, Ravich said the expansion plans would be cut back in order to "pause and recover from the stress of expanding from 22 to 72 stores over the past 21 months."
Early in 1996, Universal negotiated a $16 million line of credit with BankAmerica Business Credit that was used to finance the expansion. But in March, Universal International announced it was in technical default on its loan agreement. The bank decided to reduce the line of credit to $12.5 million, and raise the interest rate by 2 percentage points. Ravich has said that he hopes to negotiate a new line of credit by early this summer.
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