The Toys "R" Us saga continues, and while this week hasn't been as explosive as some in recent months, there has been some activity worth noting. Earlier this week it was reported that the bid for pieces of Toys "R" Us operations in the U.S. and Canada by MGA Entertainment's Isaac Larian has been rejected for "not meeting the threshold" - a statement that left many to question what exactly that threshold would be. For Canada, we now have a number, and it came via a filing of notice for a stalking horse bidder. Fairfax Financial Holdings Limited has entered into an agreement to buy the Canadian operations for $300M in Canadian dollars - equivalent to about $237M US. Larian's bid for Canadian stores was $215M.
For the past few years, Mattel's American Girl subsidiary has been running into problems. Sales have been dropping by the double-digits as habits change (damn the devices!) and other companies' 18" dolls have started to catch up to them in terms of quality but at a lower price. Add in another unfortunate set of moves that were tied to the failing Toys "R" Us (TRU), and those problems have snowballed quickly. The launch of the lower-priced, 15" Wellie Wishers line never took off in the way that everyone hoped, and those dolls and their accessories were shipped heavily to TRU. Pair that with fact that about a year and a half ago (October 2016), American Girl opened store-within-a-store pop-up concepts in 97 Toys "R" Us locations, and that's an issue. Mattel is owed over $135M in the Toys "R" Us bankruptcy that they'll likely never see and the fallout has begun. They recently announced the closing of their New York City office (100 jobs lost), and today comes news that hits close to home - they're shutting down American Girl operations in Wilmot, Wisconsin, and The Mattel Toy Store is going along with it.
As the ongoing saga of Toys "R" Us continues, there is some news to report. The biggest piece is one I'm a day late on sharing, but an important one nonetheless. After word hit yesterday that Isaac Larian, CEO of MGA Entertainment, Inc. had placed his formal bid for a piece of Toys "R" Us, many reported the news - some with conflicting numbers. This morning I received an official statement from Larian's team confirming and detailing the bid and what it entails. The formal bid of $675 million has been placed to buy the U.S stores, while $215 million has been offered to buy the Toys"R"Us stores in Canada. The funds to purchase both the U.S. and Canadian stores will come from Larian's own coffers, additional investors and bank financing. Bid amounts were determined after careful due diligence by Larian, speaking with multiple investors and 3rd party experts.
Imagine this... you're the embattled CEO of an iconic American company that is nearing the end of its 70-year history just under three years after you took the top job. You were placed into that position after a much-discussed and controversial run as the Athletic Director of a Big Ten University, during which time you were labeled "villainous", jacked ticket prices for students and families and allegedly retaliated against criticism from fans on a regular basis by attacking them via email - something that led Keith Olbermann to once deem you the "Worst Person in the World." Despite public rallies calling for you to be fired, your resignation and a subsequent book that detailed your epic failure at the college, you left with a $3M severance and were able to find work in 2015 thanks to the generosity of someone you worked for once before... Bain Capital. You see, they were running this toy store that they really wanted to be rid of, so you'd go on to tell the Wall St. Journal just that, and by 2018 you'd be giving your private equity buddies exactly what they wished for all while the public was starting to ask how someone with your experience and reputation could wind up running a toy store.
Last month, MGA Entertainment's Isaac Larian made headlines when he and "various investor associates" launched a GoFundMe campaign asking the public to help save Toys "R" Us. The lofty $1B goal was primed with $200M in the hopper, and while it's only pulled in $56K from the public thus far - that's still an impressive number. The reality is that Larian never really intended to save the company via crowdfunding, a fact that he noted on Twitter last week and backed-up in an interview with the L.A. Times. The real goal is to involve the public in helping to save Toys "R" Us and the American jobs that it supports by getting the cause in front of those with deep enough pockets to pull it off. It's no secret that I believe that the company could live on, and now the movement to #SaveToysRUs has a video. Shot at the Woodland Hills, California Toys "R" Us location, the clip features customers, store associates and even Isaac himself as they show the importance of America's last big toy store. Take a look...
As the liquidation of Toys "R" Us officially got underway last week, the saga has continued behind-the-scenes as shoppers began visiting stores in hopes of scoring a deal. For the locations that have just begun the wind-down, many felt disappointment when met with markdowns as low as 5% (game systems, LEGO) with most categories priced at just a 10% savings. While there were some higher discounts like 20% off on Easter items and bike accessories, other areas had no markdown at all - consumables like food and diapers. On the flipside, stores that began closing operations in February are nearly wiped-out, and I visited a few this past weekend. It was a sad scene at the Babies "R" Us in Vernon Hills, Illinois - set to close for good on March 31. My wife and I ordered baby furniture from that location back when our first daughter was born. Now, it's a mostly-empty building where almost everything is for sale, surprisingly stocked with a lot of non-baby toys that I suspect were dumped on the first wave of closing stores in a warehouse purge. We picked up a couple of Flip Zee Girls (Jay at Play) that our little ones had been asking for. My big score was a stockpile of LR44 batteries - the button-style that many toys consume very quickly. Deals aside, I'd rather pay full price and have 33K jobs still intact. Elsewhere the fallout is starting to be felt.