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Toys R Us Fetches $235M Offer for Canadian Stores

Toys R Us has entered into an agreement to sell its Canadian stores and assets for at least C$300 million (roughly $235 million), the bankrupt retail giant said in a court filing Thursday, stating that Toronto-based Fairfax Financial Holdings Ltd. has come in as a stalking horse bidder.

A price floor has been set for an auction of Toys R Us’ Canadian equity, scheduled to take place on Monday. The hobbled toy giant, which failed to reorganize in Chapter 11 proceedings, noted that it will seek final sale approval at a hearing set for Tuesday in Virginia bankruptcy court.

As a stalking horse bidder, Fairfax is entitled to a 3 percent breakup fee if its offer is not selected. Other parties are free to bid higher than the floor price for the assets of Toys “R” Us (Canada) Ltd., which include 82 store locations.

Fairfax comes into the bidding process with some experience purchasing distressed retailers. The investor took part in a joint venture to buy Performance Sports out of bankruptcy last year and also agreed to buy Canadian store assets from Golf Smith during its 2016 bankruptcy.

Fairfax’s offer to purchase the toy chain’s Canadian assets come on the heels of a failed effort by billionaire Isaac Larian, the CEO of toymaker MGA Entertainment Inc., to purchase Toys R Us out of bankruptcy. Larian, who announced a crowdsourcing campaign to buy a few hundred Toys R Us stores in March, said he offered $675 million for the U.S. stores and another $215 million for the stores in Canada. It was reported this week that Toys R Us turned down Larian’s proposal.

Larian has since indicated on Twitter that he is still holding out hope for a counteroffer.

The New Jersey-based children's toy chain and owner of Babies R Us filed for Chapter 11 protection in September with more than $5 billion in funded debt, stemming in large part from money its owners borrowed in 2005 to fund a $6.6 billion leveraged buyout of the company and take it private.

The retailer had hoped to dig itself out of a jam just before the 2017 holiday season, when consumers spend more on toys and other gifts than any other time of the year and 40 percent of the merchant's annual revenue is made.

The bankruptcy cases were commenced to address near-term liquidity issues and longer-term capital needs, as well as "accomplish a comprehensive reorganization" to improve operations worldwide, the company said at the time, while securing funds to keep its shelves stocked.

But after a lackluster holiday sales season, Toys R Us announced last month that it will wind down operations and liquidate inventory at more than 700 stores in the U.S. instead of trying to reorganize.

Toys R Us is represented by Edward O. Sassower, Joshua A. Sussberg, James H.M. Sprayregen, Anup Sathy, Chad J. Husnick and Emily E. Geier of Kirkland & Ellis LLP and Michael A. Condyles, Peter J. Barrett and Jeremy S. Williams of Kutak Rock LLP.

The case is In re: Toys R Us Inc. et al., case number 3:17-bk-34665, in the U.S. Bankruptcy Court for the Eastern District of Virginia.