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Final bids for Toys 'R' Us stores?
Report: Four left in field seeking to buy company's toy-retailing operation.
March 1, 2005: 8:59 AM EST

NEW YORK (CNN/Money) - Toys "R" Us has narrowed the field of potential buyers of its toy-retailing operation to four groups of bidders and is pressing them to sweeten their price in a final bidding round, a published report said Tuesday.

According to the Wall Street Journal, the groups have made offers for the unit that are close to one another, in the $3 billion to $3.5 billion range -- at the high end of what analysts have said the 975-store global toy chain could bring.

Wayne, N.J.-based Toys "R" Us (Research) could choose a winning bid as early as next week, although the company has previously indicated that a decision was expected some time in the first half of the year.

The Journal said the four groups still in the hunt are buyout specialists Kohlberg Kravis Roberts & Co.; a partnership of Apollo Advisors LP and Permira Advisors Ltd.; an alliance between Bain Capital LLC and Vornado Realty Trust ( VNO); and a group that includes Cerebus Capital Management LP, Kimco Realty Corp. (KIM) and Goldman Sachs Group Inc. (GS).

Representatives for Cerebus, Goldman, KKR and Vornado declined to comment, the paper said. It also said Kimco and Apollo didn't return calls seeking comment, and that a spokesman for Bain said the firm doesn't comment on such matters.

The inclusion of Vornado and Kimco, both real-estate investment trusts, is indicative of how the buyers regard the potential investment -- largely as a real-estate play rather than primarily as an opportunity to operate retail stores.

Of its 975 stores, Toys "R" Us owns the land and buildings at 314 locations in the U.S. and 83 overseas. In addition, it owns roughly 150 buildings on leased land in the U.S. and 20 abroad. Some sale of these assets by a buyer -- especially in Europe -- is widely expected.

It's been six months since the company first announced that it was looking to sell its global toy business and spin off its better-performing Babies "R" Us unit.

Toy retailers have struggled to recover from a constant, brutal price war launched by discounters Wal-Mart and Target during the holiday shopping season. Last year, Toys "R" Us shuttered 102 out of 146 Kids "R" Us stores and all 36 of its Imaginarium stores.

Billion-dollar Babies

But its 216 Babies "R" Us stores, which sells baby furniture, toys and clothes, certainly has been the stronger segment for the company, analysts said, accounting for three-quarters of the company's operating income, despite logging just 15 percent of the company's $11.5 billion in sales for the retailer's previous fiscal year.

And whereas sales at Babies "R" Us stores open at least a year -- a key retail measure known as same-store sales -- rose 2.8 percent last year, sales at Toys "R" Us' domestic stores fell 3.6 percent.

The company is expected to report fourth-quarter and fiscal 2005 results on March 17.

Industry observers say they're confident that Toys "R" Us still has plenty of fans both within the industry and among consumers.

"I think Toys R Us will continue to run some kind of toy operation in the future," Jim Silver, an industry analyst and publisher of the Toy Book and Toy Wishes magazines, told CNN/Money. "But in order to still be competitive, it will need to slim down considerably and run probably around 450 to 500 stores."

Said Silver, "Parents and kids still love the retailer because it still sells three times as many toys as a Wal-Mart or a Target. It still has the best selection of toys and games out there. The toy manufacturers certainly want to see it around and that's why many are giving it more exclusive deals to sell a number of their toys."

Wall Street hasn't yet given up either. Toys "R" Us' stock is currently trading near its 52-week high.

Chris Byrne, an independent toy analyst, agreed with Silver.

"Toys 'R' Us will close some of its stores but it's not going away," Byrne said. "You can't lose sight of how the consumer perceives this retailer. The company has taken a knock but consumers still see it as a powerful brand."

A spokeswoman for Toys "R" Us declined to comment.  Top of page


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