Toys R Us Lives on in Canada

Stores are a big part of a successful urban landscape. I feel the small, family owned shops and businesses, like the kind I grew up with as a boy, were a big part of what made a neighbourhood, or even a city, unique. Sadly, most of those shops are gone.

Toys R Us when it folded in the States and United Kingdom was neither small nor family owned but it had been around a long time. The closing of the stores in two of its markets caused a great deal of distress to the thousands of folk who counted on the chain for their livelihood.

Many believe the Toys R Us chain should never have failed. Its hedge fund owners take a lot of the blame whether fairly or not. Before the hedge funds entered the picture, the business had low debt levels—a smart move for a most companies. But not for hedgefunds.

The Atlantic looked at this problem. Private-equity owners often operate a business for a relatively short time before moving on. Low levels of debt present a get-rich-quick opportunity. It allows the private-equity firms to put up very little of their own money in aquiring a retail chain like Toys R Us. Many accuse hedge funds of bleeding the companies they acquire. Many claim the Toys R Us chain was bled financially and left mortally wounded by its private equity owners. And often those owners are not shy about putting their hands in the till to pay themselves exorbitant dividends and large bonuses.

But the Toys R Us story took a surprising turn in Canada. A Canadian billionaire, often referred to as the Canadian Warren Buffett, saw the impending closure as a buying opportunity. He scooped up the 82 stores of the Canadian division for a mere $300 million. Fairfax Financial, led by Prem Watsa, said the purchase was for less than the value of the Toys R Us real estate holdings alone.

Prem Watsa is not known for bleeding the companies he owns. The Canadian workers are hoping their story will have a much happier ending than the one their U.S. counterparts were forced to watch unfold. Toys R Us may not be a small, neighbourhood store, but for my granddaughters it is a big part of their urban landscape.