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Toys R Us Agrees to Sale of Entire Firm for $6.6 Billion

March 18, 2005|From Associated Press

Toys R Us Inc., the nation's second-largest toy seller, is staying in one piece after weighing a breakup.

The struggling retailer announced Thursday that it had agreed to become a privately owned company in a $6.6-billion buyout deal proposed by a group that included two equity firms and a real estate developer. The deal ended a seven-month auction that started as an effort to divide the sluggish toy business from the smaller, but more lucrative, Babies R Us unit.

Instead, the company agreed to be purchased whole by Kohlberg Kravis Roberts & Co., Bain Capital and Vornado Realty Trust, which will be equal partners.

There was no immediate word on the buyers' specific plans for the company's approximately 1,500 stores.

"We look forward to building on the many strengths of the company to make the stores a better place to shop and work," said Michael M. Calbert, a director at buyout firm KKR.

Toys R Us Chairman and Chief Executive John H. Eyler Jr. said it was up to the new owners to determine what stores, if any, would be closed.

But he noted, "The new owners paid a significantly handsome price, and the only way you can pay that price is if you believe in the future of the business, so I expect this business to be around for a very long time."

Chris Byrne, an independent toy consultant, said a privately run Toys R Us would free executives from the pressure of quarterly earnings reports, and allow them to build a business that typically has the bulk of its sales around the December holidays.

Toys R Us has been losing market share in the toy business to industry leader Wal-Mart Stores Inc. It announced in August that it would separate its toy business from the Babies R Us division, which sells children's apparel, furniture and accessories.

The consortium will acquire Toys R Us for $26.75 a share, an 8% premium over Wednesday's closing price.

The buyers are also assuming Toys R Us debt, which Fitch Ratings said totals about $2.3 billion. Fitch warned it might downgrade the debt to a B rating, three notches down from the current BB, because it appeared the new owners would be taking on about $5 billion more in debt to finance the purchase.

Toys R Us shares jumped $1.23, or 5%, to $26 on the New York Stock Exchange.

Paramus-based Vornado and KKR representatives declined to comment on details of their plans, and a Bain Capital spokesman didn't immediately return a call.

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