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The Honolulu Advertiser

Posted on: Wednesday, March 2, 2005

Toys 'R' Us stores expected to stay in game as deal nears

By Jeffrey Gold
Associated Press

NEWARK, N.J. — Although Toys "R" Us Inc., the nation's second biggest toy retailer, has reportedly narrowed the field of potential buyers of its toy operation to four groups, analysts said yesterday they believe that most of the toy stores will be preserved.

Toys "R" Us Inc., the nation's second biggest toy retailer whose stores include one in North Bergen, N.J., has narrowed the field down to four potential buyers of its toy operation, a report said yesterday.

Mike Derer • Associated Press

Industry observers have waited a half-year so far to see exactly how the company will separate its burgeoning Babies "R" Us business from the struggling toy segment.

Total liquidation of the toy business is unlikely, said Sean P. McGowan, an analyst at Harris Nesbitt.

"The company is not acting as if all these stores are going to be mothballed," McGowan said yesterday, adding that Toys R Us representatives worked "very, very diligently" at last month's American International Toy Fair in New York to obtain exclusive items that will not be on the shelves until November.

Chris Byrne, an independent consultant, said that "the Toys 'R' Us brand is incredibly powerful with parents."

"For mom, who needs to get a toy for a birthday party tomorrow, her default response is to go to Toys 'R' Us, and that's the power of a brand and the confidence in the marketplace," Byrne said.

Their comments came after The Wall Street Journal reported yesterday that Toys "R" Us is pressing the four finalists to sweeten their offers. The newspaper, citing unidentified people familiar with the matter, said the groups have each offered $3 billion to $3.5 billion for the unit. The newspaper said the price was at the high end of what analysts expected.

The toy business has been hurt by price cutting from the big discount chains such as Wal-Mart Stores Inc., the nation's biggest toy seller. Although Toys "R" Us has 685 toy stores in the United States, and 603 overseas, the 216 Babies "R" Us stores have been more profitable.

Results for fiscal 2005 are to be released March 17.

The Journal identified the four remaining bidders as 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; and a group that includes Cerberus Capital Management LP, Kimco Realty Corp. and Goldman Sachs Group Inc.

Reached yesterday by The Associated Press, Apollo, Vornado and KKR declined to comment. Calls to the others were not immediately returned.

Toys "R" Us spokeswoman Susan McLaughlin said yesterday, "We do not comment on marketplace rumors or speculation."