Toys R Us expected to fetch $1 billion in Asia sell-off with aid of Lazard

01 May 2018 3 min. read

Amid news of Toys R Us shutting down its US stores after an unsuccessful restructuring bid, the retailer has hired financial advisory firm Lazard to help sell off its profitable division in Asia. The toy retailer has over 400 stores in Asia, and posted $1.54 billion in revenues in 2016.

The rising waters of debt were, in fact, too high for Geoffrey the Giraffe – the long-necked Toys R Us mascot – to keep his head above the waterline. Drowning in debt, the beleaguered toy retailer Toys R Us announced in March that it will be liquidating its US businesses. The announcement comes after a period of unsuccessful restructuring following the company’s Chapter 11 bankruptcy filing in September.

The retailer was ultimately done in by fierce holiday competition from the likes of Amazon and Walmart who, smelling (giraffe) blood in the water, priced their toys as loss leaders. The 2017 holiday season would prove critical to the fate of Toys R Us – which did not post the type of profits it was hoping for, unable to compete with the slashed prices of its rivals.

Unfortunately, the restructuring efforts of turnaround management firm Alvarez and Marsal were unable to save the firm. Born in the suburban environment inhabited by, then, diaper-bound baby boomers, the large, increasingly moribund-looking stores in hard-to-reach suburban locales could not offer much value to consumers as online retailers beat them on price and convenience. As a last ditch effort, the stores tried to revamp with a more ‘experience-focused’ strategy – where children could play with toys before parents ultimately purchased them for less on Amazon. The company will now shutter its 885 US stores in the coming months.Toys R Us receiving $1 billion offers for Asia business Meanwhile, the US firm is in the process of selling off its 430 Asian stores, which have, in contrast, remained profitable. Toys R Us has hired global financial advisory and M&A specialist firm Lazard to help sell off its 85% stake in the Toys R Us stores in Asia. Lazard has reportedly received multiple bids of over $1 billion for the profitable Asian division, which would also include intellectual property.

Potential buyers reportedly include Chinese private equity funds, as well as Hong-Kong-based retailer Li & Fung – which currently owns a 15% stake of Toys R Us in Asia. Li & Fung’s parent company, Fung Group, is considered the present frontrunner, as the firm aims to own 100% of Toys R Us Asia. Lazard will be looking to get high value for the successful regional operation which has over 400 locations across Japan, Hong Kong, Taiwan, Singapore, China, the Philippines, Malaysia, Thailand, Brunei, and Macau – with reported revenues of $1.54 billion in 2016.

Lazard, one of the world’s leading financial and M&A advisory firms, served as a financial advisor to Toys R Us during its Chapter 11 bankruptcy process in the US. The consultancy – which has offices in Hong Kong, Tokyo, Beijing, and Singapore – will be helping extract the greatest value possible from the sale of Toys R Us Asia assets to pay off the firm’s many creditors, who hold about $5 billion in debt. Much of the debt stems for a $7.5 billion leveraged buyout by private equity firms in 2005, who thereafter saddled the toy retailer with debt to take it private.

In a sad coincidence, Toys R Us founder Charles Lazarus died at age 94 on March 22, just a week after the US company announced its plans to shut down. He founded the company as a baby furniture retailer in Washington D.C. in 1948, shifting focus to toys in 1957. Lazarus was responsible for the backwards “R” logo, which was stylised to give the impression that a child wrote it. The founder left the company in 1994; in 1998, for the first time, Toys R Us had fallen behind Walmart in toy sales. Things would not get better for the business in the years that followed.