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Bankrupt firm again delaying re-emergence Retailer's CEO wants time to improve the bottom line; A shrinking pie; 'Performance has not improved as projected'


It was supposed to happen in June, but it didn't.

Then it was going to occur in October.

Yesterday, Merry-Go-Round Enterprises Inc. announced another delay in plans to emerge from bankruptcy protection -- this one until sometime next year -- citing the need to give its new chief executive officer time to focus on improving the bottom line.

"All the stakeholders have agreed to take this standstill to allow [CEO] Richard Crystal to get his arms around this company," said spokesman Michael Kempner.

But the delay could mean that shareholders will end up with less equity once the company exits bankruptcy.

"From a shareholder's perspective, you can anticipate this is very bad news," said Peter Chapman, a minor creditor and president of Bankruptcy Creditors' Service Inc. in Princeton, N.J. "The problem is, there's a pie that's so big, and lots of people want a piece of it, and the size of the pie has gotten smaller over the last year."

If it continues to shrink, Mr. Chapman said, shareholders could be left with little more than warrants, the right to buy shares at some point in the future at a designated price. "Operating performance has not improved as projected, therefore creditors would be getting less," he said. "Creditors want more. This is bankruptcy."

The pie has shrunk because sales at stores open at least a year have failed to register a gain since December 1992, more than 460 stores have been shuttered and shareholder equity has rapidly evaporated.

The results haven't improved since Mr. Crystal, a former R.H. Macy & Co. executive, took over Joppa-based Merry-Go-Round July 10. Earlier this month, the retailer reported a net loss of $28 million, or 52 cents per share, for the most recent quarter. And analysts agree that it will take several more months before Mr. Crystal can turn around the apparel chain, which has about 975 stores geared toward young adults.

Already, the process has been protracted.

Merry-Go-Round, which filed for Chapter 11 bankruptcy protection in January 1994, had filed a plan of reorganization in February under which creditors would receive $130 million in cash and notes as well as 75 percent of the equity in the company, while stockholders would get the remaining 25 percent of the shares.

Now, however, the company expects to submit an amended plan of reorganization no earlier than Jan. 31.

"In essence, what's going on is that there's a recognition on behalf of all the parties that this company is not yet ready to come out of Chapter 11," said Stephen Selbst, attorney for the official equity committee representing stockholders.

Projections had called for a recovery by now, but Merry-Go-Round's anemic sales means "regrettably, it's not a question of being a couple dollars off, it's significantly off," Mr. Selbst said.

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