Toymaker MGA Entertainment seeks to buy Toys "R" Us Canada as U.S. retailer liquidates

A California toymaker that owns the Bratz, Little Tikes and Num Nums brands is trying to buy all 82 Canadian locations of Toys "R" Us while the retailer's U.S. operations are in the process of liquidating.

MGA Entertainment Inc. confirmed in an email Wednesday that CEO Isaac Larian has submitted a bid to buy the chain's Canadian arm.

News broke on Wednesday that the iconic U.S. toy chain plans to liquidate 740 stores, but the retailer's Canadian arm says it is so far unaffected and all Canadian stores "remain open for business in the normal course."

Toys "R" Us Canada "operates autonomously from U.S. operations, and continues to be a stable and profitable market leader in Canada," the toy-seller said in a release, adding that the Canadian stores have enough cash to continue funding themselves "without disruption."

That's good news for the some of the chain's Canadian suppliers, a list that includes Ottawa-based PlaSmart Inc.

CEO Timothy Kimber told CBC News in an interview Thursday that he had $50,000 worth of merchandise sitting on a shipping dock, waiting to be delivered to Toys "R" Us stores when he heard the news this morning.

"I'm trying to decide whether we should ship it or not," he said. "Are we getting paid? That's the biggest question everybody wants to know."

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PlaSmart, which specializes in making toys that develop motor, dexterity and problem-solving skills says he hasn't shipped much product to the U.S. chain for a while, because of fears that they would not be able to afford to pay the bills. But he's had no such concerns about the Canadian arm, until now.

In a release, Toys "R" Us was quick to stress that the Canadian unit has more than enough cash to continue to pay its vendors and employees while offering customers "a broad selection of the most exciting, must-have toy and baby products."

The company sold had about $1 billion worth of Canadian sales last year, which works out to just over $12 million per store. At that level, Toys "R" Us sells about one quarter of all the toys sold in Canada, according to recent estimates of the total market.

The retailer stressed in its release that customers have nothing to fear. "The company continues to honour all customers programs, including gift cards and warranty, return and exchange policies," the chain said.

While declining to name MGA as the would-be buyer, Toys "R" Us said in the release that it is "pursuing a going concern sale of Toys "R" Us Canada and are in active discussions regarding a transaction that would result in an acquisition of the entire Canadian business."

"Toys "R" Us Canada is a good business," Larian said in an emailed statement.

"They run it efficiently, and have good leadership. At the right price, it makes economical sense."

While he agrees that the Canadian arm is better run than its U.S. parent, retail analyst Bruce Winder says he's doubtful that MGA will manage to successfully save the Canadian arm long term.

"They could buy them," the co-founder and partner of Retail Advisors Network said, "but what are they going to do with it?"

"They're probably just prolonging the inevitable," he adds, because it's not just about buying the chain — they would need to invest funds into fixing what's ailing the company, including sprucing up the stores and overhauling the online offerings.

"Realistically, Toys "R" Us is a broken retailer," caught between cheap prices at Amazon and Walmart on one side, and specialty stores like Mastermind that sell educational toys on the other, he said.

"I don't really think there's a need for them anymore, and I don't think they're going to survive this."

Regardless of what the fate of the Canadian stores ends up being, that of the U.S. locations seems clearer.

Unless a buyer can be found for the U.S. business, all 740 stores there are likely to close. The chain is likely to also liquidate its businesses in Australia, France, Poland, Portugal and Spain.