Toys R Us seeks approval to sell its Canadian arm to Fairfax

Shuttering of U.S. stores of the debt-laden retailer Toys “R” Us often raised questions about the uncertain future of its Canadian unit that has been profitable for years. However, it appears that the toy retailer will continue its operations in Canada as it is seeking an approval from the court to sell its Canadian operations to an investment firm headquartered in Toronto.

Toys R Us apparently withdrew the auction of its Canadian business — that generates annual revenues of over $1 billion — and is considering the sale of the unit to Fairfax. Toys R Us is currently awaiting an approval for the sale from the bankruptcy court.

Billionaire Prem Watsa’s investment firm has offered $300 million for the Canadian unit. This bid by Fairfax puts an end to the apprehensions looming over the Canadian unit. Post the agreement, Fairfax plans to run the Canadian unit of the troubled retailer under the existing name. This offer by Fairfax, which is known for investing in undervalued assets, sets the platform for other bidders to join in.

Prior to Fairfax, a formal bid was proposed by toymaker Isaac Larian. Currently, the chief executive of MGA Entertainment, Larian has shown interest in acquiring the 200 plus U.S. stores of Toys R US, which the latter declined for being valued too low. He had even offered $215 million to buy the Canadian arm — that stayed functional despite the closure of stores in the U.S. and the U.K. — but got a blow when Fairfax easily topped his offer.

Toys R Us apparently withdrew the auction of its Canadian business — that generates annual revenues of over $1 billion — and is considering the sale of the unit to Fairfax

Larian, who had initiated a crowdfunding campaign to raise funds to support his buyout bid, finds Toys R Us Canadian operations as a good business. He still has the chance to sweeten his bid. In such a scenario, Fairfax can either increase its bid or can choose to abandon the bidding process. If in case of Toys R Us fails to strike a deal with Fairfax, it is liable to offer Fairfax a break fee of about 3%.