Dive Brief:
- MGA Entertainment CEO Isaac Larian has upped the ante in his attempt to save Toys R Us from liquidation. Last week, the executive submitted a $890 million bid for the retailer's Canadian business and a chunk of its U.S. business, according to a press release emailed to Retail Dive.
- Larian's bid included $215 million for the company's 80 Canadian stores and another $675 million that would, according to a spokesperson for Larian, preserve 200 stores in the U.S. The move follows a crowdfunding campaign led by Larian to raise $1 billion to save the toy store chain that only managed to raise $60,000 beyond Larian's startup donation of $200 million.
- Toys R Us had previously announced it aimed to sell its Canadian unit, and sell 200 of its top-performing U.S. stores as part of a potential deal. Even as it does so, the company is going through the motions of winding down its entire U.S. business. Friday was the bid deadline for Toys R Us' Canadian unit. The company did not immediately respond to questions from Retail Dive about all bids it received. An auction for the Canadian business is set for Wednesday.
Dive Insight:
Larian's crowdfunding effort was always, in the best of scenarios, a long shot. But clearly he is serious about saving some portion of Toys R Us. The release described the crowdfunding campaign as "an effort to rally the community around the cause." And he has reasons beyond saving jobs and preserving a nostalgic destination for children filled with toy lust. As the Associated Press and others have reported, MGA, maker of Bratz dolls and L.O.L. Surprise!, relies on Toys R Us for around 20% of sales.
"The time is now. Everyday that goes by, the value of Toys R Us declines and more people lose their jobs," Larian said in a statement. "I did my part, and now it's up to the other side to accept this offer."
Joshua Friedman, a legal analyst with Debtwire, told Retail in an interview that Larian's bid has a reasonably good chance of succeeding at auction. The specificity of the bid could indicate that Toys R Us had been in talks with the toy maker in advance of announcing plans to liquidate. In those plans, Toys R Us' attorneys said the company had "developed a potentially value-maximizing transaction" that would save it’s top 200-performing U.S. stores along with the Canadian business. As Friedman points out, "driving up the bid price is not in "Larian's" interest.
Toy makers all over are watching the collapse of Toys R Us with understandable wariness, as it not only leaves a gaping hole in the toy market but is also likely to increase the market power of Target, Walmart, Amazon and other massive retailers that don't rely on toy sales year round and are happy to position toys as loss leaders during the holiday shopping season to drive traffic.
Besides being a vested player in the toy industry, Toys R Us also functioned as "a terrific place to test new companies, brands and individual products in the first half of each year," Tim Hall, a former Hasbro executive wrote recently in an op-ed for Retail Dive.
Larian's bid comes as more than $2 billion in merchandise is going on the market at "deep discounts" as the retailer closes its remaining 735 Toys R Us and Babies R Us stores. Those sales could be a drag on the entire toy market, including any salvaged Toys R Us, should parents hold onto toys they bought at closeout prices from liquidating Toys R Us stores through the holiday season, as Retail Dive has reporter.
A terrible holiday showing — during which Toys R Us was outgunned on price by rivals and made numerous operational bungles — set the wind-down of Toys R Us' U.S. business in motion. After filing for Chapter 11 at the worst possible time, the retailer came well short of fourth quarter earnings targets for its bankruptcy loan. As it breached its covenants and started to run out of cash, lenders began to see full liquidation of the domestic business as the most viable path toward repayment on Toys R Us' massive debt (a hangover from its leveraged buyout by private equity companies last decade).
