Oh dear, I hate to see a pet lose the only home he has ever known because of this - it makes no sense. Maybe they can go back somehow and reintroduce the kids and the cat - sound like the first time did not work well for whatever reason. Too fast maybe? I have two nieces (ages 7 and 18 mos) who are so used to the pets and the pets are very protective of the kids and sleep partially on top of them. I think it is a matter often of training and if there are serious probs, there are many medications - not just one kind - that work. I would give it more of a chance that they have. If they have only tried one medication, that is not really that much of an effort with all due respect. And I say this as a pediatrician who has many patients with cats. I have families who have even trained the cat to not come too close to a child when s/he was in a situation - waiting for a bone marrow transplant for example - where pers too close by was not a good thing! So I would not give up just yet!!
It does sound like an anxiety issue so if the cat has the right med, he may only need until he adjusts to the kids - and they are not going to be toddlers forever!! The children also need to learn how to behave around the cat and respect him as well.
I just hope they'll give him more of a chance! It seems so unfair!
"There are two means of refuge from the miseries of life: music and cats" Albert Schweitzer