Toys ‘R’ Us set to liquidate U.S. operations, but fate of Canadian unit unclear
Toys “R” Us Inc. is making preparations for a liquidation of its bankrupt U.S. operations after so far failing to find a buyer or reach a debt restructuring deal with lenders, according to people familiar with the matter. While the situation is still fluid, a shutdown of the U.S. division has become increasingly likely in recent days, said the people, who asked not to be identified because the information is private. Hopes are fading that a buyer will emerge to keep some of the business operating, or that lenders will agree on debt restructuring, the people said. The toy chain’s U.S. division entered bankruptcy in September, planning to emerge with a leaner business model and more manageable debt. A new US$3.1-billion loan was obtained to keep the stores open during the turnaround effort, but results worsened more than expected during the holidays, casting doubt on the chain’s viability. The situation has also deteriorated for many of the retailer’s overseas divisions, which weren’t part of the bankruptcy. Toys “R” Us’s U.K. unit put itself in the hands of a court administrator after discussions about selling the business fell apart. Its European arm is seeking takeover bids. And talks are being held to off-load the growing Asian business, the company ’s most profitable arm. It’s not yet clear what will happen to the Canadian unit, which filed at the same time as the U.S. division. A representative for the Wayne, N. J.-based Toys “R” Us declined to comment.
The downfall of Toys “R” Us can be traced back to a US$7.5 billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt. For years, the retailer was able to refinance its debt and delay a reckoning. But the emergence of online competitors, like Amazon.com Inc., weighed on results. The company’s massive interest payments also sucked up resources that could have gone toward improving operations. Its worsening situation, along with reports that it was considering bankruptcy, spooked vendors — with about 40 per cent of them ceasing shipments and forcing the company to seek court protection.