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Toys R Us wants UK bids this week as endgame looms

Sky News logo Sky News 07/02/2018
Toys R Us has 106 UK stores and employs 3,200 people in the country © Reuters Toys R Us has 106 UK stores and employs 3,200 people in the country

Toys R Us is seeking offers for its loss-making UK arm before the end of this week as fears grow for the fate of one of the high street's best-known retailers - and the jobs of more than 3000 workers.

Sky News has learnt that advisers to the company's US parent have met prospective bidders in the last 48 hours and told them to submit expressions of interest by the end of Thursday.

The truncated timetable underlines the precarious future of Toys R Us in Britain, just six weeks after it was thought to have been salvaged in an eleventh-hour rescue deal.

Sky News can also reveal that the entire European operations of the ailing retailer are now on the market, encompassing 236 stores outside the UK in ten countries including Austria, France, Germany and Spain.

The UK and European businesses are being sold through separate processes being run by Lazard and Alvarez & Marsal.

Sources said the UK faced the more imminent threat of bankruptcy, with a cash call due later this month meaning administration is inevitable without new funds being injected into the business.

That would leave a brand which has had a presence in the UK since 1985 potentially disappearing from the retail sector.

The prospects of a solvent sale were unclear on Wednesday, with some potential buyers likely to wait until Toys R Us UK has crashed into administration before trying to pick off the most attractive stores.

Poor Christmas trading has left the British business facing cashflow issues, and one insider said it looked "close to unsaveable".

The company, which currently employs about 3,200 people in Britain, is already planning to shed up to 800 jobs through a process called a Company Voluntary Arrangement (CVA), which was approved by creditors just three days before Christmas.

‎The CVA is intended to provide breathing space for Toys R Us UK to improve its fortunes by closing 26 of its loss-making stores and securing big rent reductions at many others.

‎Under that plan, which won the backing of 98% of creditors, including the Pension Protection Fund (PPF), its loss-making larger stores are due to begin closing in the spring.‎

A Toys R Us UK spokesman declined to elaborate on a statement issued last week about the plan to offload the British operations, which said: "The US business is exploring a number of options as it develops plans to exit Chapter 11.

"These conversations are confidential but I can assure you that they are acting in the best interests of employees, business partners, shareholders and lenders.‎"

The CVA deal secured the 11th-hour support of the PPF after the company agreed to pay almost £10m into its pension scheme over the next three years.

The pensions lifeboat had initially threatened to vote against the plan.

Without a new owner being found, the Toys R Us pension scheme, which is tens of millions of pounds in deficit, will be absorbed by the PPF.

Any such move is set to attract renewed attention from Frank Field, the Labour chairman of the Commons Work and Pensions Select Committee.

In a letter to Mr Field published prior to the CVA's approval, Toys R Us UK's pension trustees insisted that the restructuring would "not compromise the scheme".

The veteran MP expressed alarm, however, saying: "As with BHS, the trustees and pensions regulator were kept entirely in the dark.

"The pension scheme is, at best, an inconvenient afterthought to self-interested corporate restructure."

Shortfalls in defined benefit pension schemes are facing intense scrutiny following the collapse of Carillion, the construction group, which fell into liquidation with a Section 75 pension deficit of £2.6bn.

Specialist toy retailers endured tough festive trading amid competition from Amazon and other online rivals, with Toys R Us now planning to close about 180 US shops - roughly 20% of the total - in the coming months.

In the UK, retailers including BHS, Focus DIY and JJB Sports have previously used CVAs to exit loss-making stores, although all three companies ultimately succumbed to the fast-changing retail environment.

New Look is now working on a similar plan, and House of Fraser is going through a process of seeking rent reductions from landlords.

The effort to overhaul its UK estate follows the filing by Toys R Us' American parent for Chapter 11 bankruptcy protection in September.

There has since been controversy over payments to UK executives and the write-off of a big loan owed to the UK company.

When the CVA was approved, Steve Knights, the managing director of the UK business,‎ hailed the "strong support for our business plan... so that we can better serve our customers today and long into the future".

A source said the full list of European countries where Toys R Us's operations were on the market also included Denmark, Finland, Iceland, Norway, Poland and Portugal.‎

In the US, Toys R Us won a court order this week to allow it to retain liquidators to close nearly 200 of its shops.


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