Toys R Us reportedly rejects toy maker's bid to save 200 US stores

Dive Brief:

Toys R Us has rejected as too low an $890 million bid from MGA Entertainment CEO Isaac Larian for the toy retailer's Canadian business and 200 U.S. stores, according to reports from the Wall Street Journal and CNN, both of which cited unnamed sources. Toys R Us attorneys did not immediately reply to Retail Dive's request for comment.
According to the Journal, Larian's offer did not "meet the qualified bid threshold under the court-approved auction procedures" and so Toys R Us took the offer off the table, a source told the newspaper. Larian said in a statement emailed to Retail Dive that he hadn't been notified of the rejection, but said if true the development "is very disappointing."
The retailer adjourned the bankruptcy auction for its Canadian unit yesterday and will now hold it on April 23, according to a court filing. Larian added in his statement that he hopes and expects to participate in the bid process. "We feel confident that we submitted a fair valuation of the company's U.S. assets in an effort to save the business and over 130,000 domestic jobs," he said.

Dive Insight:

The chances of Toys R Us surviving as an operating retailer in the U.S. keep narrowing.

Larian's bid was, apparently, the only one that would have preserved some piece of the company's U.S. business. It's possible he had been in talks with the retailer for months, given the specificity of the bid, which corresponded with statements in court filings from Toys R Us attorneys in March that the retailer had "developed a potentially value-maximizing transaction" that would save its top 200-performing U.S. stores as part of an acquisition of the company's Canadian business.

Joshua Friedman, a legal analyst with Debtwire, told Retail Dive that such a rejection would likely indicate Larian's bid was "lower than the forecasted liquidation scenario and would have resulted in worse recoveries for [Toy R Us'] secured creditors," or it might have been untenable based on other contingencies.

"An auction would only take place if sufficient qualified bids were received," Friedman added. "If the Larian bid is not materially improved, assuming it was actually rejected, then another bidder would have to step up to the plate to make a bid; otherwise, the liquidation will be full speed ahead."

Larian's MGA Entertainment, maker of Bratz dolls and L.O.L. Surprise!, relies on Toys R Us for around 20% of sales. It, like a lot of toy makers, has a vested interest in keeping Toys R Us alive and operating. Now those makers are looking at a $1.3 billion hole in the toy market, as Toys R Us leaves its domestic toy sales on the table.

The collapse of Toys R Us 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 can afford to position toys as loss leaders during the holiday shopping season to drive traffic.

Mass merchants and other large sellers helped drive Toys R Us toward retail oblivion. The toy seller was outgunned on price by rivals during the holiday season, as it has been for several years now. It also made numerous operational bungles during the period, which along with competition and consumers wary of buying gift cards from a bankrupt retailer, made for a disastrous fourth quarter sales decline that set the retailer's U.S. liquidation into motion.

There may still be a chance for Larian to save a fraction of Toys R Us in the U.S. at next week's auction. He may need more money, though, and some luck.