Fairfax approves deal to keep Canadian unit going

Fairfax NEW YORK/TORONTO Financial Holdings Ltd., the investment firm run by billionaire Prem Watsa, signed an agreement to buy the Canadian unit of Toys “R” Us Inc. for about $300 million.

The so-called stalking horse bid allows other potential buyers to enter competing proposals by Monday, according to a U.S. bankruptcy court filing submitted by Toys “R” on Thursday.

Fairfax would then have the option of either increasing its offer or walking away. Under the terms of the deal, Fairfax would receive a break fee of about three per cent if another bidder is chosen.

After the takeover, Fairfax would be able to continue operating Toys “R” Us stores in Canada under the existing name. The deal would follow a Fairfax-backed consortium’s purchase of athletic equipment maker Performance Sports Inc. last year, a process that was also overseen by a bankruptcy court.

Shares of Toronto-based Fairfax fell 0.01 per cent to $671 in Toronto and are up 11 per cent in the past 12 months. That compares with a loss of one per cent for Canada’s benchmark S&P/TSX Composite Index.

Earlier this week, Toys “R” Us turned away an offer from the founder of MGA Entertainment Inc. to keep some of its North American stores open, a person familiar with the matter said at the time.

The Wayne, N.J.-based firm filed for bankruptcy in September, hoping to shed debt and turn around the business.

After dismal sales during the holiday season, it opted instead to liquidate its U.S. operations and try to sell its Canadian business. Toys “R” Us had 82 stores and 3,751 employees in Canada at the time it filed for creditor protection.

The unit has generated positive free cash flow since filing in September amid higher than projected sales and lower than expected disbursements, according to the most recent court monitor report.