Wed, Oct 18, 2017 - Page 10 News List

Toys ‘R’ Us mulls options for its US$2bn Asia unit

Bloomberg

Toys “R” Us Inc, the retailer which has filed for bankruptcy in North America, has been exploring options for its growing Asian business including a potential initial public offering, people with knowledge of the matter said.

The US chain and its local joint venture partner, the billionaire brothers Andrew and David Fung, have been speaking with investment banks to study the feasibility of listing the Asian business on the Hong Kong bourse, the people said.

A deal could value the unit at as much as US$2 billion, the people said, asking not to be identified because the information is private.

WHICH PATH?

Toys “R” Us and some of its North American subsidiaries filed for bankruptcy last month, although its Asian unit was not included in the proceedings. Deliberations are at an early stage and Toys “R” Us has not decided which path to pursue, the people said.

Toys “R” Us owns about 85 percent of the Asian venture while Fung Group (馮氏集團), the private holding company of Hong Kong businessmen Victor (馮國經) and William Fung (馮國綸), holds the remainder.

The ongoing bankruptcy could make a listing more complicated and harder to market to investors. Still, an initial public offering of the Asian unit would allow Toys “R” Us’ private-equity owners to recoup some of their investment by selling shares in a business that is still doing well.

REGIONAL DOMINATION

Toys “R” Us dominates the US$20.7 billion Asia-Pacific market for traditional toys and games, consultancy Euromonitor International said.

It had a 20 percent share of last year’s sales of dolls, action figures, puzzles and other similar products that lack a videogame component. Its closest competitor in the region had a 1.4 percent share, the Euromonitor data show.

Growth in the Asia-Pacific region helped offset weaker sales in the US and Europe in the quarter ended April 29, Toys “R” Us said in June.

Earlier this year, the company combined its Japanese business with a joint venture running stores in greater China and Southeast Asia. The merged business operates more than 400 outlets, its Web site said.

The toy retailer’s owners had initially discussed the feasibility of listing the Asian business as early as next year, but some parties view that time line as too ambitious because of the complexities related to the bankruptcy proceedings in the US, the people said.

Representatives for Toys “R” Us and its owners, KKR & Co LP, Bain Capital and Vornado Realty Trust, declined to comment.

A spokeswoman for Fung Group also declined to comment.

PRICE WARS

KKR, Bain and Vornado acquired Toys “R” Us in a US$7.5 billion leveraged buyout in 2005.

They stand to have their investment erased as the retailer, which has 1,600 stores across dozens of countries, seeks bankruptcy protection after competition from online rivals and price wars made it difficult for the company to service its debt.

KKR and Vornado had previously written their investments in the company down to zero.

Toys “R” Us Asia was set up in 1986. Local partner Fung Group is also the biggest shareholder in Li & Fung Ltd (利豐集團), a supplier to US retailers including Wal-Mart Stores, Inc.

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