Toys R Us accepts $237-million bid from Toronto firm to buy its stores in Canada

Fairfax Financial Holding offered $237 million in U.S. dollars to buy Toys R Us' Canadian operations in bankruptcy. The bid surpassed the $215-million offer from Isaac Larian, CEO of MGA Entertainment.
(Julio Cortez / Associated Press)

A Toronto investment firm run by billionaire Prem Watsa has reached a $237-million deal to acquire the 82 Toys R Us stores that the bankrupt retailer operates in Canada — topping an offer by California toy mogul Isaac Larian.

The agreement puts Fairfax Financial Holdings Ltd. in the so-called stalking horse position in an auction for the assets. Larian and other bidders could submit sweetened offers by Monday, according to a U.S. Bankruptcy Court filing submitted by Toys R Us 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 3% if another bidder is chosen.

Larian, the owner of Van Nuys toy maker MGA Entertainment Inc., last week offered to buy the Canadian stores for $215 million along with a separate $675-million offer to buy 274 U.S. stores outside the bankruptcy process. However, his offer for the U.S. stores was rejected as too low and he said at the time that he planned to pursue the U.S. stores through the formal auction process.


Larian, who started a crowdfunding campaign to help finance his own bid, issued a statement Friday that he was evaluating options, but indicated he was not entirely displeased with the development.

“As long as Toys R Us and jobs are saved, I’m happy,” Larian said in the statement. “That’s what #SaveToysRUs was and is about. In regards to Toys R Us USA, the fight to save it is just beginning.”

New Jersey-based Toys R Us Inc. filed for Chapter 11 in September after suffering falling sales for years as Amazon and other online competitors ate into its business. It also was saddled with a $5-billion debt load stemming from its 2005 leveraged buyout that took the company private.

It was seeking to restructure, but after a poor holiday season it opted to liquidate its U.S. operations and try to sell its Canadian business. It was the third largest public bankruptcy filed in 2017, according to the website BankruptcyData.

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, according to the most recent court monitor report.

After the takeover, Fairfax could continue operating Toys R Us stores in Canada and use the company’s name. Last year, an acquisition vehicle co-owned by affiliates of Fairfax and Sagard Holdings Inc. bought athletic equipment maker Performance Sports Inc., a process also overseen by a bankruptcy court.


For the last month, Larian has led a public campaign to save Toys R Us from bankruptcy. He launched a $1-billion GoFundMe campaign to drum up publicity for his bid but raised less than $100,000. Last week, he submitted an $890-million offer for the U.S. and Canadian stores funded by his own money, other large investors and bank financing.

Larian, like Watsa, has a net worth roughly estimated at $1 billion. His MGA toy company makes the popular toy L.O.L. Surprise! and Bratz dolls. MGA relies on Toys R Us for about 18% to 20% of its annual sales.

Larian has said that 130,000 U.S. jobs are at risk if Toys R Us shuts down, including at suppliers, distribution centers, trucking companies and other firms tied to the retailer. They include MGA’s Little Tikes plant in Hudson, Ohio. It makes children’s wagons, furniture and other toys, employs 1,200 and sells 40% of its products through Toys R Us.

If successful, Larian has implied that he would transform Toys R Us, making the stores immersive and interactive. He has also predicted that if Toys R Us is bought by another private equity firm, it will fail.

Bloomberg contributed to this report.


Twitter: @jaclyncosgrove