"Money R Us" - KKR Group to Buy All of Toys 'R' Us For $5.7 Billion; TRU agrees to sell

Thursday, March 17th, 2005 8:40AM CST

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Posted by: Seibertron Views: 16,446

KKR Group to Buy All of Toys 'R' Us For $5.7 Billion

By JOSEPH PEREIRA and DENNIS K. BERMAN, The Wall Street Journal

(March 17) - A seven-month long auction to sell a division of Toys "R" Us Inc. ended late Wednesday night with a sale of the entire company for about $5.7 billion to a consortium consisting of two private-equity firms, Bain Capital and Kohlberg Kravis Roberts & Co., and Vornado Realty Trust, according to people familiar with the matter.

All three parties are equal partners in the acquisition.

The full sale of the specialty retailer came as a surprise because as recently as this week the Wayne, N.J., retailer was actively soliciting bids for its toy-division only. The expectation was it would continue operating its smaller but more profitable baby products division called Babies "R" Us. But the parameters of the bidding changed after one of the bidders proposed last month cq to buy the entire company. The two divisions, whose supply networks and computer systems were intricately intertwined, proved too difficult to split up.

Toys "R" Us became an attractive property because of its well-located stores, a good portion of which are expected to be sold to other retailers. The consortium still intends to run the remaining business with its well-known name, the people familiar with the matter say. An official announcement is expected Thursday morning.

Once a dominant player in the toy business during the 1980s and early 1990s, Toys "R" Us began to lose market share to Wal-Mart Stores Inc. and other discounters. Hurt by a fierce price war, the company decided last year to hire Credit Suisse First Boston to sell its toys division and increase its share price.

The transaction represents an aggressive bet on U.S. real estate and retail for KKR, which invested in European retailer VendexBB and some U.S. hotel properties but has largely stayed out of the those markets.

For Bain Capital, the purchase will be the continuation of a four-year journey into selling toys, having become a principal owner of KB Toys, a smaller chain that is now seeking to emerge from Chapter 11 bankruptcy protection. By bringing in Vornado, the investor gains deep experience in the real estate business, where Vornado is most active in the New York and Washington D.C. areas.

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It's interesting to note that KB Toys and Toys R Us are now siblings rather than rivalries. Perhaps this could give the better brand (TRU) the chance to expand into malls? Time will tell ...

Credit(s): YankeeSR23