Kohlberg Kravis Roberts & Co. (search) , Bain Capital and Vornado Realty Trust have agreed to buy retailer Toys R Us Inc. (TOY) for about $5.7 billion, sources close to the process said on Thursday.

The private equity group beat out rival Cerberus Capital (search) to win the auction for the entire company, the No.2 U.S. toy retailer, after a hotly contested battle for its toys business.

Toys R Us shares were up $1.29, or 5.2 percent at $26.06 on the New York Stock Exchange (search). The shares, which had traded as low as $12.90 over the last 52 weeks, earlier hit a more than 3-1/2-year high of $26.15.

"They're coming together as equal partners to do this," one of the sources said, adding that the deal was likely to be announced later on Thursday.

Another source said the buyout group plans to keep the New Jersey-based retailer intact and not break it up, as analysts had mooted.

"They like the fact that Toys is the only global (brand) so breaking it up geographically would erode that," the source said.

The sale is the latest in a busy buyout sector, in which private equity firms such as KKR and Bain have raised billions in funds and are aggressively competing for deals.

KKR, Bain and Toys R Us declined to comment, while Vornado did not immediately return calls seeking comment.

KKR had been bidding on its own for the toys business but teamed up with Bain and Vornado after rival Cerberus submitted a surprise bid for the whole company, including its fast-growing Babies R Us stores, last week.

"People have been scrambling to get the deal together," one of the sources said.

Last summer, under pressure from Wal-Mart Stores Inc. (WMT) and other powerful competitors, Toys R Us put its toy business up for sale and said it planned to focus on the Babies R Us stores, which sell infant clothes, linens and furniture.

Some of the company's 700 U.S. toy stores are seen as more valuable for their real estate than as sales outlets.

Private equity firms in particular are drawn to real estate, because they can use it as collateral against the loans they secure to buy a business.

Rival bidder Cerberus was working with Goldman Sachs Group Inc. and real-estate investment trust Kimco Realty Corp., sources familiar with the auction previously told Reuters.