Fairfax Agrees Deal to Keep Toys `R' Us Canada Unit Going

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(Bloomberg) -- Fairfax Financial Holdings Ltd., the investment firm run by billionaire Prem Watsa, signed an agreement to buy the Canadian unit of Toys “R” Us Inc. for about C$300 million ($237 million).

The so-called stalking horse bid allows other potential buyers to enter competing proposals by Monday, according to a U.S. bankruptcy court filing submitted by Toys “R” on Thursday. Fairfax would then have the option of either increasing its offer or walking away. Under the terms of the deal, Fairfax would receive a break fee of about 3 percent if another bidder is chosen.

After the takeover, Fairfax would be able to continue operating Toys “R” Us stores in Canada under the existing name. The deal would follow a Fairfax-backed consortium’s purchase of athletic equipment maker Performance Sports Inc. last year, a process that was also overseen by a bankruptcy court.

Shares of Toronto-based Fairfax rose 0.4 percent to C$674 in Toronto at 9:55 a.m. and are up 11 percent in the past 12 months. That compares with a loss of 1 percent for Canada’s benchmark S&P/TSX Composite Index.

Earlier this week, Toys “R” Us turned away an offer from the founder of MGA Entertainment Inc. to keep some of its North American stores open, a person familiar with the matter said at the time.

Cash Flow

The Wayne, New Jersey-based company filed for bankruptcy in September, hoping to shed debt and turn around the business. After dismal sales during the holiday season, it opted instead to liquidate its U.S. operations and try to sell its Canadian business. Toys “R” Us had 82 stores and 3,751 employees in Canada at the time it filed for creditor protection.

The unit has generated positive free cash flow since filing in September amid higher than projected sales and lower than expected disbursements, according to the most recent court monitor report. It reported C$69 million of cash flow since filing for creditor protection, with a C$36.7 million cash balance at March 31.

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