A wild card bidder has made an offer for all of Toys 'R' Us, including the Babies 'R' Us chain, throwing the auction for the company's toy store division into disarray, The Post has learned.
It could not be determined whether the wild card is an existing bidder or a new entrant, but the offer has some rivals scrambling.
Credit Suisse First Boston (search), the investment bank advising Toys 'R' Us, has told at least three of the four finalist bidders that their offers are two low. But the bankers have also left the door open for these bidders to come back with sweetened offers, or to submit new proposals to purchase the entire company, sources said.
The four groups that submitted final offers for the toy chain last week are: Kohlberg Kravis Roberts & Co. (search) ; Bain Capital and Vornado Realty Trust; Apollo Advisors, Permira Advisors and National Realty; and Cerberus Capital Management, Kimco Realty Corp., Schottenstein Stores Corp. and Goldman Sachs Group.
The move by First Boston to broaden the auction, prompted by the surprise bid, came as Toys 'R' Us has begun to narrow the list of potential suitors for the toy division, believed to be worth $3.5 billion to $4 billion. KKR is thought to be a lead contender, for all or part of the business.
Negotiations are ongoing, and it is unclear whether Toys 'R' Us has decided on an outright sale of the company.
A Toys 'R' Us spokeswoman declined to comment.
Under pressure from Wal-Mart and other large discount chains, Toys 'R' Us said in August that it planned to separate the faster growing Babies 'R' Us division, in a restructuring that could also include the possible sale of its namesake toy stores around the world.
Any potential buyer is expected to greatly slim down the ailing toy business, by selling some stores and closing others.
The sale of the toy division includes 1,136 stores in the United States and overseas, including licensed and franchise operations, though not the 146 Japanese stores that are run through a separate company, in which Toys 'R' Us has a 48 percent stake.
A majority of the store pruning is expected to take place in the U.S., the toughest competitive market for Toys 'R' Us, but one where the real estate is likely to carry a higher value than would overseas locations, analysts said.
Toys 'R' Us owns the land and buildings at 314 locations in the U.S., and owns the buildings on leased land at another 152 sites. Abroad, the tally is 83 stores owned outright, and 20 owned on leased land, according to the company's annual report.
At the same time, Toys 'R' Us stores abroad have been quicker to evolve and stay ahead of the competition, observers said. In the U.K., for instance, Toys 'R' Us is marketed as a family leisure store that sells bicycles, computers and digital cameras in addition to toys.
In the most recent quarter, the international division, with about half the revenue generated by the U.S. arm, earned $15 million in operating income, compared with a $77 million loss at the domestic toy stores.
The ability to unlock the value of Toys 'R' Us' real estate is likely to be central to any bid, especially since two of the four finalists were real estate investment trusts, Vornado and Kimco.
In coming months, however, the real estate market is likely to be flooded with retail properties, as two newly merged giants — Federated/May and Sears/Kmart — shed stores, perhaps making it more difficult for Toys 'R' Us to do the same.