Hooked on Phonics

As an example of what creative advice can do for a putative buyer in a distressed situation, we think the Hooked-on-Phonics case is illustrative.

Hooked on Phonics, a well-known consumer education company, was a high flier that ran into difficulties and filed for bankruptcy. We advised a prominent buyout fund in connection with its interest in buying the company. The company's creditors opposed a quick sale to our client and sought instead a competitive auction process to maximize value. As advisor to the buyout fund, our goal was quite the opposite: to end-run that process and acquire the business as quickly and as inexpensively as possible.

Our due diligence uncovered the fact that the entrepreneur who had founded Hooked On Phonics was the owner of the famous 1-800-ABCDEFG telephone number the Company used as its primary consumer marketing tool. The entrepreneur licensed use of the telephone number to Hooked On Phonics. In order to give our client a “leg up” on the process, we encouraged it to enter into an option agreement with the entrepreneur, which would enable our client to have the exclusive right to own the telephone number - irrespective of whether we were the successful buyer. This tactic was successful, insofar as it significantly reduced other buyers' enthusiasm for the property, and thus our client was able to buy Hooked on Phonics on desired terms expeditiously.