The Ontario Superior Court granted Toys “R” Us Canada approval on Wednesday to conduct a bidding process to find last-minute buyers for its business and assets, including its intellectual property and leases.
The beleaguered toy retailer, which filed for creditor protection in February, is expected to run the sale and investment solicitation process (SISP) for 14 weeks, with successful bidders to be selected by June 5.
The court documents did not rule out the possibility that an insider, such as Doug Putman, the Canadian businessman who purchased the toy giant, or another relevant party with insider knowledge of the business, would participate in the bidding for the assets.
In fact, the retailer agreed to change a few SISP rules to address an insurance company’s concern that the original terms might give an inside bidder a “procedural advantage” over other independent participants.
“I believe that the SISP is the best available option to maximize value for the (Toys “R” Us)” stakeholders, said Neil Taylor, the retailer’s chief restructuring officer, adding that the process could broadly expose its business and property to the market.
Some insolvency lawyers told the Star earlier that Putman may well be best positioned to bid for the business and continue it with a smaller footprint, given his ownership of the secured debt and insider knowledge of the business.
Before Toys “R” Us filed for creditor protection, the retailer accumulated $91 million in debt to two secured creditors — both numbered companies owned by Putman, who acquired the retailer from Fairfax through Putman Investment in 2021.
One of those numbered companies, 2625229 Ontario Inc., is also the ‘debtor-in-possession’ (DIP) lender, providing court-approved emergency funding of up to $15 million to Toys “R” Us to keep it operating during the Companies’ Creditors Arrangement Act proceedings.
The other company, 1001485743 Ontario Inc., is owed $76 million and holds a security interest in the Toys “R” Us intellectual property.
Toys “R” Us did not respond to the Star’s request for comment on whether Putman will bid on the assets.
David Ian Gray, a Vancouver-based retail analyst, said Toys “R” Us still has some brand value, as people recognize its name, logo, and even its mascot, Geoffrey the Giraffe.
However, he said the creditor protection proceeding will have a dampening effect on bid pricing, as buyers know this is a “desperate sale.”
“Unless they get a bidding war over this,” Gray said, “they may have to accept whatever the buyer offers.”
Retail analyst Bruce Winder said Toys “R” Us faces unfavourable timing for a liquidation and sale, noting that companies are operating in a “pretty rough economic environment.”
“People will probably pick at it,” said Winder, “but I’m not sure if there’s an heir apparent who’s just going to wind up and buy the whole thing.”
Winder said he is not surprised to see the once-venerated toy giant enter the final sales process, given its struggling operations and fierce competition from Amazon and Walmart in the toy category.
“It is a sad milestone,” he said. “But I’m not surprised, because this is just a natural purging of the industry, as weaker formats exit and new formats emerge.”
