Toys ‘R' Us Brand Auction Delay Means Santa May Not Come to Town

(Bloomberg) -- A drawn-out sale process is never good for value, but in the case of Toys “R” Us, the delayed auction of its brand name could constitute an existential threat to any long-shot comeback.

That’s because the closer it gets to Christmas, the less likely any potential bidder for the chain’s intellectual property would have time to reboot the brand before the toy industry’s biggest season.

The intellectual property auction -- once expected to take place in June -- has been postponed until Oct. 4, according to recent court filings. That means a winner wouldn’t be designated until the second half of October, or several months after the wind-down of the U.S. business, which shuttered its hundreds of stores in June. In the meantime, rivals like Inc. and Party City Holdco Inc. have been making inroads into what was once Toys “R” Us territory.

The delay traces back to the complexity of the Toys “R” Us capital structure, according to a person with knowledge of the situation. The company’s Asia unit was paying valuable royalties to the U.S. as part of a licensing and services agreement. Now the Asian division is for sale and there is debate about whether it will continue to pay those fees or not -- an outcome that would drastically affect the unit’s value. So until the Asia unit is sold, the U.S. auction is on hold, said the person, who asked to not to be named because the negotiations are private.

If bidders for the intellectual property buy the name too late to use it for the critical holiday season, there would be little opportunity for it to generate revenue until at least 2019, driving down much of the brand’s appeal. Frequently, when a retail chain sells off its brand names and logos, little is done with them -- competitors often buy up the rights to keep them from being used by another rival -- but in this case, a bidder could be looking to resuscitate the brand.

A spokeswoman for the company declined to comment.

Former Toys Chief Executive Officer Jerry Storch, one prospective buyer of the Toys “R” Us name, has been working with investors in a bid to revive the retailer in the U.S., Bloomberg News reported in June. But a further delay in obtaining the brand could heighten existing concerns that time is too short to reconstruct the infrastructure needed to operate Toys 2.0.

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