Vornado Bidding for Toys ‘R’ Us

Dec 03, 2004

By George Anderson

Vornado Realty Trust, which recently made news when it took a stake in Sears shortly before the merger with Kmart was announced, is reported to be a top candidate to takeover the Toys ‘R’ Us chain.

Led by Steven Roth, Vornado has been extremely successful in buying and shutting down retail chains (Two Guys and Alexander’s) and then developing the acquired land for other purposes.

John Lutzius, an analyst with Green Street Advisors, told the New York Daily News, “Vornado’s made a lot of money out of chasing troubled retailers. We should expect to see them going after more of these deals in the future.”

In fact, Vornado has done just that. The company recently came up short on a bid to purchase the Mervyn’s department store. Cerberus Capital Management and partner Kimco Realty won that showdown and the two are competing with Vornado and its partner, buyout firm Bain Capital, to acquire Toys ‘R’ Us. Former Toys ‘R’ Us chairman Michael Goldstein and an investors group he has put together are also said to be in the running to acquire the chain.

Although many within retail industry circles view Vornado’s interest in Toys ‘R’ Us as simply a real estate deal, a purchase doesn’t necessarily mean Mr. Roth and company would engage in a fire sale of the 300-plus store locations owned by the company in the U.S.

According to The Daily News, Mr. Roth told analysts during the bidding for Mervyn’s that Vornado “wouldn’t rush to liquidate” the chain. Instead, the strategy would be to keep stores operating. In time, if they couldn’t turn a profit, then Vornado would close some or all of the stores.

Moderator’s Comment: What do you think is the best case scenario for the Toys ‘R’ Us business? Is the chain headed in the right direction with its current
business strategy?

From what we’ve heard, employees and vendors wouldn’t be at all upset if the company chose to not go ahead with the sale and continued to operate the business.
We’ve been told that there is a real sense of optimism both inside and out of the company with the approach it is taking to the holidays this year.

George Anderson – Moderator

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