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WAYNE, NJ-In a surprise move consummated this morning, Vornado Realty Trust, Bain Capital and Kohlberg, Kravis, Roberts & Co. have agreed to buy specialty toy and baby-product retailer Toys 'R' Us Inc. It had been reported that the only toy side of the business had been on the block, but not the more successful Babies 'R' Us. Currently the Toys 'R' Us mix of properties includes domestic 681 toy stores and 601 toy stores in other countries, plus 218 Babies R Us, all of which are in this country.

The three-partner venture will acquire all of the outstanding equity of Toys 'R' Us for $26.75 per share in cash or about $6.6 billion, which was approved by the board of directors of Toys 'R' Us. They will have equal shares. The deal is still contingent on regulatory review and approval by the shareholders of the company, but is expected to be finalized by July. Toys 'R' Us stock was trading at about $25.35 per share Thursday morning, up slightly after the announcement.

Toys 'R' Us has been suffering from stiff competition from the likes of Wal-Mart and other discounters in recent years. In the critical holiday sales season in 2004, total net sales for the company decreased 0.9% to $4.29 billion for the nine-week period ended Jan. 1, 2005, compared to $4.33 billion for the nine-week period ended Jan. 3, 2004. Comparable US toy store sales--a critical measure of retail health--for the nine-week period ended Jan. 1 decreased by 2.2% compared to the same period a year before. Numbers for the company's fiscal fourth quarter (ended Jan. 29) have not been released yet.

"This transaction brings our strategic review to a successful conclusion," says John Eyler, chairman and CEO of Toys 'R' Us , in a statement this morning. "There was competition among bidders during the review process, and the acquisition price reflects the value of the global Toys 'R' Us and Babies 'R' Us operations and assets."

None of the three buyers are strangers to retail properties. New Jersey-based Vornado owns or manages about 87 million sf of real estate, including office and retail properties, with a large concentration in the New York metro area and in greater Washington, DC. Bain Capital, headquartered in Boston, has about $24 billion in assets under management, including investments in Staples, Domino's Pizza and Burger King. New York-based KKR has invested in the retail sector in North America and Europe to the tune of over $17 billion of aggregate value, including stakes in supermarkets, consumer drugstores, and specialty retail.

Instant Insights /

REIT and Equity Partners Buy Toys 'R' Us for Nearly $7B

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