Toys 'R' Us Plans IPO Five Years After Buyout

Posted Feb 16th 2010 9:00AM by Zac Bissonnette
Filed under: Deals, Rumors, Wal-Mart (WMT), Private Equity

The New York Post reports that five years after taking Toys "R" Us private for $6.6 billion, "the retailer's private-equity owners are angling to cash in with an initial public offering this summer."

Bain Capital, Kohlberg Kravis Roberts and Vornado Realty are the current owners of the 860 Toys "R" Us stores in the United States, along with 716 international stores.

In the past five years, quite a bit has changed in the toy industry. Leading competitors FAO Schwarz and KB Toys collapsed as a result of the recession -- with Toys "R" Us acquiring the former off the scrap heap. According to the Post, "The retail industry reported only mildly positive holiday sales last month, but Toys 'R' Us boasted a solid gain of 4.6% in its domestic comparable sales for December, helping offset a companywide decline of 3.5% in last year's fourth quarter."

The problem for Toys "R" Us, aside from economic uncertainty, will continue to be Wal-Mart (WMT) and the Internet, which have both come close to destroying many specialized big box retailers in recent years, most notably Borders Group (BGP).

Without a compelling growth story -- or even a real reason for existing -- Toys "R" Us will be a tough sell.

The only story for Toys "R" us will be cash flow and valuation. But given that, you have to wonder: Why even bother taking it public?

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