Toys R Us to be acquired by consortium

Thursday, March 17th 2005, 9:58 am
By: News On 6

NEWARK, N.J. (AP) _ Toys R Us Inc., the nation's second-largest toy seller, agreed Thursday to be acquired for about $5.75 billion by an investment group that includes two private equity firms and a real estate developer, ending a seven-month auction for the struggling company.

Its shares jumped 5 percent.

The Wayne-based company had announced in August it would seek to separate its sluggish toy business from the smaller, but more lucrative, Babies R Us division.

Instead, the company will be swallowed whole by Bain Capital LLC, Kohlberg Kravis Roberts & Co., and Vornado Realty Trust, who will be equal partners.

The consortium will acquire all shares of Toys R Us for $26.75 a share. With roughly 215 million shares, that values the bid at $5.75 billion.

Toys R Us shares jumped $1.24, or 5 percent, to $26.01 in morning trading on the New York Stock Exchange.

The buyers are also assuming an undisclosed amount of debt.

Toys R Us had been a public company since 1978. Completion of the deal requires regulatory review and approval by the shareholders, and is expected to occur by July, the company said.

Toys R Us, second only to Wal-Mart Stores Inc. in toy sales, announced in August it would separate its toy business from the Babies R Us segment, but did not say how.

The toy business has been losing market share for years to Wal-Mart and other discounters such as Target.

Although Toys R Us has 681 toy stores in the United States, and 601 overseas, the 218 Babies have been an increasing factor in profitability.

Babies R Us, which sells baby furniture, clothes and accessories, accounted for three-quarters of the company's operating income, despite logging just 15 percent of the company's $11.6 billion in sales for the fiscal year that ended Jan. 31, 2004.

In that fiscal year, sales at Babies R Us stores open at least a year rose 2.8 percent, while sales at domestic Toys R Us stores open at least a year fell 3.6 percent.

Results for fiscal 2005 were to be released Thursday, but the company on Tuesday said the figures would be indefinitely delayed to allow the company to compute changes in how it accounts for leases. The delay was not related to the planned restructuring, the company said.

The deal is the latest in a series of big changes for Toys R Us.

It shuttered 182 Kids R Us and Imaginarium stores in early 2004, cutting about 3,800 U.S. jobs. In 2003, it consolidated five offices in New Jersey into one in Wayne.

Toys R Us has cautioned that its financing costs could rise. Its $2.3 billion in long-term debt is labeled at below investment grade by three credit rating agencies, all of which warn that the rating could fall farther. Their concern has been fueled by uncertainty since August on what shape the latest restructuring would take.

Sales during the last holiday period slumped 1.4 percent compared to a year ago, but Toys R Us may have regained some market share because of discounts and selection.

Toys R Us has also recently took steps to keep some of its top people, dangling bonuses of up to twice their salaries if they stay aboard during the restructuring.

Among those agreeing to stay on through at least Jan. 31, 2007, were president John Barbour, chief financial officer Raymond L. Arthur and vice president for human resources Deborah M. Derby, according to a Feb. 14 filing with the Securities and Exchange Commission.