To the owners of The Corporation for Entertainment & Learning Inc. (CEL), a $5-million New York City film production company, going public seemed to be the best way to raise the capital the company needed to become a bigger player in the television and motion-picture industry. But the road to a public stock offering seemed too long and costly.

Then last year, an opportunity arose that was too good to turn down. A stockbroker who knew one of CEL's owners had helped an eight-store retail chain and post-production facility called National Video Centers Inc. go public in December 1981, only to see it file a Chapter 11 bankruptcy petition 15 months later. The broker saw a way to help CEL and save what he could of National Video. He proposed a reverse merger between CEL and the defunct retailer. National Video would cease to exist, its board would be dissolved, and the viable portion of is business -- a videotape production and duplication facility in Long Island, N.Y. -- would become part of a new, public CEL.

CEL viewed a traditional public offering as a formidable obstacle. Recalling a 1974 attempt to go public that was aborted in the face of a bear market, CEL president Sanford Fisher says, "The problem with the [Securities and Exchange Commission] route is, it is so terribly time-consuming, especially for the officers of a small company without lawyers and accountants to rely on." Merging with National Video involved its share of financial advisers and legal counsel, naturally, but still turned out to be much cheaper and less cumbersome than dealing with the SEC. All in all, the deal cost CEL less than $100,000 in legal and accounting fees, barely a third of what a $2-million initial public offering might normally cost.

Although the merger was not a traditional shell deal, in which a private company acquires the name and public status of a dormant company, the CEL-National Video merger could have posed the kinds of problems that make such deals risky propositions. To protect itself against unknown liabilities stemming from National Video's troubles, CEL made the merger agreement contengent upon the bankruptcy court's discharge of National Video's Chapter 11 filing.At the final court hearing in March 1984, proceeds from the sale of National Video's assets were disseminated to creditors who, along with shareholders, now have public stock in an ongoing enterprise. CEL knows that the court's discharge of the bankruptcy makes it unlikely that creditors will come crawling out of the woodwork.

CEL got no money in the deal, but it did receive a $1.5-million tax-loss carry forward from National Video, and gained a valuable National Video production facility that quickly became a profit center within CEL. And CEL has already seen a payoff from the merger. Last fall, it raised $525,000 in a private offering of common stock -- a move that was made easier by CEL's new status as a public company.