The Battle for Toys R Us Asia

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It is certainly possible that a Toys R Us Asia, , owned and operated by Li & Fung, will eventually expand back into North America, Europe, Africa and South America, thus resurrecting the retailer on a global scale. 

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Two weeks ago I wrote about the ongoing battle for Toys R Us Asia. (See: "Toys "R" Us Asia; What's In a Name? We're About to Find Out"). It appears that a fight for use of the name "Toys R Us" in Asia was just a skirmish in a much bigger war between sourcing titan, Li & Fung and its bankrupt partner, Toys R Us. 

According to court filings, Toys R Us is attempting to prevent an arbitration and an auction for its Asian assets from taking place because the bankrupt retailer is concerned that it will allow its Asian partner, Li & Fung, to pick up the Asian group at a bargain price.

Its a bit complicated but here is how I understand it:

  • Li & Fung currently holds 15% ownership in the Asian group. The Asian group is highly successful and was not included in the Toys R Us bankruptcy. 
  • Li & Fung wishes to purchase all of the Asian assets.
  • Before doing so there is to be an auction.
  • Li & Fung has right of first refusal once the auction has determined a price. 
  • The auction cannot take place until Li & Fung settles issues with competing interests.

  • Li & Fung has filed to enter into arbitration with those competing interests in order to settle the matters that are preventing the auction.
  • Toys R Us's concerns arise from fears that the arbitration will create legal confusion,  which will result in a lower auction bid and allow Li & Fung (which remember has right of first refusal) to pick up the chain at a dramatically reduced price. 
  • In order to stop Li & Fung, Toys R Us, on Monday, filed for an injunction to prevent the former from entering into arbitration. They also want the court to invalidate Li & Fung's right of first refusal.

I think it would be in the industry's best interest for Li & Fung to win rights to the Asian stores and the brand name Toys R Us. Here are four reasons why:

1.    Li & Fung has successfully run the Asian division and that alone makes the case for why it would make the best steward. 

2.    Li & Fung has deep, deep pockets so no one has to worry about their solvency. 

3.    Li & Fung, with its vertical integration and outstanding management practices, has made Toys R Us Asia a world class operation.

4.    It is certainly possible that the Asian division, owned and operated by Li & Fung, will eventually expand back into North America, Europe, Africa and South America, thus resurrecting on a global scale. 

Everything around Toys R Us seems to be complicated. Let's hope this one works its way through the courts quickly so that we can all move forward.

 

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