Dive Brief:
- Toys R Us canceled an auction for its intellectual property assets scheduled for this week despite receiving qualified bids ahead of the event. Attorneys for Toys R Us did not respond to requests for more information.
- The retailer's attorneys said in a court filing that instead of selling its brand property and other IP at auction, the assets would remain a part of its Geoffrey Holdings subsidiary, which is set to reorganize in Chapter 11. That implies, as Bloomberg and others have reported, that Toys R Us lenders will control the retailer's IP after bankruptcy when they take over Geoffrey. In the filing, Toys R Us attorneys said that leaving the IP with Geoffrey posed better prospects for financial recoveries for lenders.
- The reorganization plan for Geoffrey "contemplates a new, operating Toys R Us and Babies R Us branding company that maintains existing global license agreements and can invest in and create new, domestic, retail operating businesses under the Toys R Us and Babies R Us names, as well as expand its international presence and further develop its private brands business," according to the filing.
Dive Insight:
The latest plot twist in the fate of Toys R Us is a somewhat anticlimactic one. There appears to be no white knight galloping in to save what is left of the toy retailer. Yet, the company's brand is likely to survive in some form.
In June, the retailer said some 115 parties had been in touch about the IP sale, indicating significant interest. Among those Toys R Us talked with were "major retailers, infant and juvenile consumer products businesses, brand buying and e-commerce organizations, and short-term strategic partners."
Yet apparently none of them could put together a compelling enough bid to win over Toys R Us and its backers (namely its lenders). The bids may or may not have included a reported effort by former Toys R Us CEO Jerry Storch, who was said to be working with investors to keep a couple hundred stores operating in the U.S. (Storch did not immediately reply to a request for comment.)
It's not the first time this year that an effort to keep some physical piece of Toys R Us alive and operating has failed. Months ahead of the planned auction, MGA Entertainment CEO Isaac Larian put together multiple plans to save more than 200 U.S. stores, but each time came up short on the purchase price.
Instead of going to a savior from the outside, it appears the brand property will stay with the Geoffrey entity, with equity going to Toys R Us' lenders, according to court documents.
"Basically, this is the best way for creditors to recover," Joshua Friedman, a legal analyst for Debtwire, told Retail Dive in an interview. "My takeaway from this was they received qualified bids for certain of the IP assets, but I think they were hopeful they would get a sufficient package for all the IP assets so there was more value there. But it didn't materialize."
"Despite all this, if somebody showed up in the future, I'm sure they'd be open to it," he added.
The question is what, exactly, Geoffrey's owners will do with the brand property now that they are retaining it. Will they restart a physical Toys R Us, as the brand owners of Bon-Ton and FAO Schwarz have done? Or will they leave behind the physical retailer and license the brand to product makers? The even bigger question: Will the Toys R Us brand be revived, or will it fade quietly in the coming years?
