Private Equity, Not Amazon, Killed Toys 'R' Us

Sep. 20, 2017 2:28 PM ETAMZN, MAT, WMT9 Comments


  • Toys 'R' Us filed for Chapter 11, yesterday.
  • As of late April 2017, Toys 'R' Us had $5.2 billion in debt.
  • The company's annual interest expenses average roughly $450 million over the past five years. Private equity's LBO gone wrong killed the toy star, not Amazon.

This article originally appeared on my Seeking Alpha Marketplace site, Market Adventures, this past Saturday morning.

On September 6, 2017, CNBC and other media outlets reported that Toys 'R' Us was close to a bankruptcy filing (see article here).

Per the CNBC article:

Toys R Us was taken private by KKR, Bain, and Vornado in 2005 in a deal valued at $6.6 billion.

Its owners had tried to take the company public, filing for an initial public offering in 2010, but later pulled it, citing challenging market conditions. At that time, the toy industry was struggling to deal with the increasing popularity of electronic gaming apps.

Early Saturday morning, September 16th, CNBC ran this story from Reuters.

Source: Reuters (See article link here)

I find it fascinating that the media loves the practice of first level thinking and simply cites that competition from Amazon (AMZN) and Wal-Mart (WMT) are main reason for Toys 'R' Us's downfall.

See this part of the article:

The toy merchant's move underscores the deep distress rippling through retailers of all sizes as consumers increasingly shop online at sellers such as Inc. or go to discounters such as Wal-Mart Stores Inc.

On September 15, 2017, the WSJ published this article:

Source: WSJ

The WSJ piece cites vendor re-payment fears and tighter terms.

The potential filing would be propelled by the toy chain’s suppliers tightening trade terms, including holding back on shipments unless Toys ‘R’ Us is able to make cash payments on delivery, the people added.

While Toys ‘R’ Us already has received a majority of its holiday shipments, it is still without a portion of the goods and could soon be cut off from receiving any fresh inventory, these people said.

This news intrigued me, as I have been negative on Mattel (

This article was written by

Idea generation, value investing, small caps and under the radar stocks.
A career wanderer and journeyman, with a passion for deep value and contrarian investing. I spent five years on the buy side in investment grade bonds on a team that managed $50 billion of assets, 3.5 years as an energy credit analyst for an energy company, and had multiple stints in corporate finance, most recently as a strategic financial analyst. I have an undergraduate degree in Finance (UMass Amherst) and earned an MBA (Babson College).

I actively invest my own capital and for a few family members.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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