Toys `R' Us accepts investor group's buyout proposal

Struggling toy retailer Toys "R" Us said on Thursday it agreed to a US$6.6 billion buyout by an investor group headed by Bain Capital and Kohlberg, Kravis, Roberts and Co.

The group will buy all outstanding shares of the retailer for US$26.75 a share, and will assume the debt of the company.

Two prospective bidders -- the Kohlberg Kravis Roberts (KKR) group and a second investment group led by Cerberus Capital Management -- sparked a bidding war for the total company, which includes its struggling toy division as well as the successful Babies "R" Us division.

KKR, an established leveraged buyout firm, has played a key role in some of the world's most notable mergers and acquisitions.

It generally takes a company private, builds it up and then takes it public again or sells it for a premium.

Bain is a large private-equity group that has taken positions in such wide-ranging companies as Domino's Pizza and Staples, among others.

Also part of the winning group is Vornado Realty Trust, which said it was putting in US$450 million for a one-third interest in the venture.

Vornado is a real-estate investment trust that owns and manages many properties, including the Merchandise Mart in Chicago.

The company, in a lengthy process that began last August, initially said it was seeking buyers only for the toy-retailing chain that bears its name. But after the Cerberus group offered an alternative buyout proposal last month, the company changed the parameters of the bidding.

"We are pleased to announce this transaction, which brings our strategic review to a very successful conclusion," said John Eyler, chairman and chief executive officer of Toys "R" Us.

"There was competition among bidders during the review process, and the acquisition price reflects the compelling value of the global Toys `R' Us and Babies `R' Us operations and assets," Eyler said.

Toys "R" Us, with some 1,500 stores including 600 outside the US, helped transform toy retailing as a leading specialty "big box" store, but has been struggling amid competition from the likes of Wal-Mart and other discount retailers. However, the baby supply superstores have been performing well.

Toys "R" Us, Inc reported sales of US$11 billion in the fiscal year to Jan. 31 last year, but profits fell sharply to US$88 million.

In the most recent quarterly report to Oct. 30, it posted a net loss of US$25 million on net sales of US$2.2 billion.