Toys "R" Us rejects Bratz CEO's offer to buy stores

Toys "R" Us has rebuffed a billionaire's eleventh-hour bid to buy some of its stores out of bankruptcy. 

The company rejected an $890 million offer from Isaac Larian, founder of toy company MGA Entertainment, to acquire some of its outlets in the U.S. and Canada, according a person familiar with the matter. The offer is not considered a "qualified bid" because it was well below the liquidation value of the assets he was proposing to purchase.

Toys "R" Us said in March it plans to close all of its 850 domestic stores, shuttering America's largest toy seller and costing tens of thousands of workers their jobs.  

Larian isn't quite ready to concede defeat.

"I haven't yet been notified of the bid rejection, but if this is true it is very disappointing," he said in a statement. "It is our hope and expectation that we can continue to participate in the bid process so we can keep fighting to save Toys 'R' Us. We feel confident that we submitted a fair valuation of the company's U.S. assets in an effort to save the business and over 130,000 domestic jobs."  

Larian, an immigrant from Iran, had offered to buy 274 of the 735 remaining Toys "R" Us locations in the U.S. and most of the roughly 80 stores in Canada. Keeping even a scaled-down chain alive would be a tall order, one expert said.

"Probably 90 to 95 percent of companies that go into some form of bankruptcy come out of bankruptcy," said Jan Rogers Kniffen, a retail consultant. "That's not true in the retail world. Last year, 55 percent of the retailers that filed [for bankruptcy] liquidated."

Larian, whose brands include Bratz! and LOL Surprise, the world's largest toy brand, told CBS News that he's proven skeptics wrong before.

"#Bratz went on to become the No. 1 fashion doll in the world within four years, when everyone said it was impossible to take on Barbie," he said in an email. "I like challenges. I have some big, out-of-the-box ideas to #SaveToysRUs and grow the business if I'm successful in getting Toys 'R' Us' assets."  

In an unusual move, Larian had launched a GoFundMe campaign to raise up to $1 billion to help fund the purchase of the Toys "R" Us stores. He and an undisclosed group of private investors have pledged $200 million as part of that effort, while public donors have chipped in just over $60,000 since the initiative launched in March.

Any money raised not used to help fund a deal for Toys "R" Us would be returned to donors, according to the campaign.  

"The funds collected through this campaign would be used in the formulation of a bid to acquire some Toys 'R' Us assets through the bankruptcy process," the campaign's GoFundMe page states. It also notes that there is no guarantee that Larian will proceed with a formal offer or that it would be accepted.

Toys "R" Us had been hurt by a $5 billion debt load after a 2005 leveraged buyout by private equity firms. The debt limited its ability to develop a robust internet strategy or invest in its stores.

Larian planned to transform Toys "R" Us' stores from cavernous warehouses to destinations that would provide customers with "experiences" that can't be replicated online. Larian's ambitious goal was to create a "mini-Disneyland in each neighborhood." It's an idea that the chain's current management team has also tried to advance.

Last year, Toys "R" Us launched "Play Labs" at 42 locations where kids would get a chance to play with some of the "season's hottest" toys. Unfortunately, for most Toys "R" Us customers, shopping in a Toys "R" Us wasn't fun.

"The stores are drab," said Brett Rose, CEO of the wholesale distributor, United National Consumer Suppliers who likened the "experience" of shopping at Toys "R" Us to a grocery store. 

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    Jonathan Berr is an award-winning journalist and podcaster based in New Jersey whose main focus is on business and economic issues.