Toys 'R Whom?

Toys 'R Us will be bought out later this spring for up to $6.6 billion. The lucky winners of the recent bidding war for the troubled toy-seller include a leveraged-buyout firm, the private-equity company that also owns Dominos and Staples, and a real-estate specialist.

A deal of this sort wouldn't ordinarily raise many eyebrows, and for the most part it's not raising mine. But I'll just comment on this phrase from a larger WSJ article (which I won't link since it's subscription-only):

Toys "R" Us Inc. achieved its goal of boosting shareholder value by agreeing to be acquired...

This is certainly one strategy for "boosting shareholder value." And the deal certainly will do that: The announced value of the deal--$26.75 per share--represents a not-insignificant premium on the recent stock price. Still, we probably shouldn't assume that this value boost is going to save the company.

Although everyone is saying that the purchasers intend to rebuild the Toys 'R Us "brand" to compete with the toy departments at WalMart and Target, there's no escaping the fact that one of the Toys 'R Us-buying troika is a real estate investment company. Even if this deal keeps the toy store complete (over the past few months we'd seen speculation that it would be split up and sold off in parts), executives seem to be protesting just a bit too much that we're not about to see a big real-estate sell-off.

What's the moral of this story? There isn't one, really. Should we mourn the fact that erstwhile titan Toys 'R Us is falling victim to discounters like WalMart and Target? No. The pair are winning the toy wars because they're delivering what parents want at prices they can afford. So if it turns out to be true that the parts of Toys 'R Us--its real estate holdings--are worth more than the sum, this deal will be a great way for investors to cash out and for those locations to be converted to better uses. The march of progress...