Toys 'R' Us set to sell worldwide toy stores for $3.5bn

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The Independent Online

The embattled chain Toys 'R' Us is on the brink of selling its global toy stores business for up to $3.5bn (£1.8bn) as it struggles to compete with discount retailers such as Wal-Mart.

The embattled chain Toys 'R' Us is on the brink of selling its global toy stores business for up to $3.5bn (£1.8bn) as it struggles to compete with discount retailers such as Wal-Mart.

Toys 'R' Us is understood to have a shortlist of four interested bidders for the 975 outlets across the US and abroad, including the UK. An announcement could be made next week.

The New Jersey-based company said six months ago it would sell the underperforming toy business to concentrate on its successful Babies 'R' Us - a higher margin business which sells furniture, toys and clothes for babies.

The toy store chain has attracted interest from several private equity consortiums. They are thought to include a partnership between Permira and Apollo, and one between Bain Capital and Vornado Realty Trust. A group including Goldman Sachs and Cerebus Capital Management has also expressed interest, as has the buyout specialist Kohlberg Kravis Roberts.

Toys 'R' Us would not comment on speculation it was close to completing the auction for the business. It is pressing for the interested parties to increase their offers from the current range of between $3bn to $3.5bn, according to the Wall Street Journal.

The inclusion of Vornado, an investment trust specialising in property, and Kimco, a similar investment trust which is working with the Goldman group, indicates that the potential investors see the deal as an opportunity to pick up valuable real estate, rather than to gain control of the franchise.

Of its 975 stores, Toys 'R' Us owns the land and buildings at 314 locations in the US and 83 overseas. It also owns about 150 buildings on leased land in the US and 20 abroad. Analysts expect a buyer to sell off some of them, especially in Europe.

Toy companies are struggling to fight back against a price war with Wal-Mart and Target, another discount retailer. But analysts have praised the Babies 'R' Us business.

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