UPDATE 2-Toys R Us eyes $800 mln IPO, details scant

Fri May 28, 2010 11:26am EDT

* Toys R Us eyes NYSE listing

* Terms of IPO not given

* High debt load could stifle investor interest (Adds analyst comment, details from filing, NEW YORK dateline, byline)

By Phil Wahba

NEW YORK, May 28 (Reuters) - Toys R Us [TOY.UL] filed to raise as much as $800 million in an initial public offering in what could mark its return to the public markets after five years.

But investors' appetite for Toys R Us, which was taken private in 2005 by Kohlberg Kravis Roberts & Co KKR.AS, Bain Capital, and shopping center operator Vornado Realty Trust (VNO.N) in a $6.6 billion deal, will depend on how much of the money raised will go to its current owners and how much will go to fund growth.

Those three companies collectively own 98.2 percent of Toys R Us, but the prospectus filed on Friday with the U.S. Securities and Exchange Commission did not specify whether they would shed any of their stakes in the eventual IPO.

Toys R Us, based in Wayne, New Jersey, said only in the filing that it plans to use the net proceeds of the offering to pay down some of its debt, without getting into specifics.

A recent slew of private-equity backed IPOs have flopped because they were seen as exit vehicles for buyout firms. Toys R Us and its underwriters will have to price the IPO sensibly and make clear it will leave the retailer equipped to compete with other retailers, an analyst said.

"Right now, I don't believe there is a good market whatsoever for private equity backed companies. It's hard enough to launch an IPO, but much tougher for a debt-laden company," said Scott Sweet, a senior managing partner with IPO Boutique.

Toys R Us' long-term debt load of $5.2 billion could be a turn-off for investors, Sweet said.

The filing did not specify the number of shares, or a price range estimate, information that typically comes in shortly before an IPO is launched. Nor did it provide an approximate timing for the stock flotation.

For now, Friday's filing is likely to be a "trial balloon" to allow the underwriters, led by Goldman Sachs (GS.N), to gauge investor appetite for the IPO, according to various pricing scenarios, Sweet said.

Given the recent spike in stock market volatility, which makes IPOs very hard to launch, a Toys R Us IPO is likely to be "months away," Sweet said.

STABLE SALES, BETTER PROFIT

Toys R Us is the largest specialty toy store in the United States but has faced stiff competition from retailers such as Wal-Mart Stores Inc (WMT.N), Amazon.com Inc (AMZN.O) and Target Corp (TGT.N).

Toys R Us operates 1,363 stores around the world under its own name, as well as the Babies R Us and FAO Schwarz chains, making it one of the more prominent names in the U.S. pipeline.

But Sweet warned name recognition alone is not enough to whet investor appetite. Investors typically want to see fast sales and profit growth to justify taking on riskier IPO stocks.

Toys R Us sales have been stagnant for a number of years. In the fiscal year ended in February 2007, sales were $13.1 billion, and had only risen to $13.6 billion last year.

But during that period, its net profit nearly tripled to $312 million, as the retailer cut back on costs and kept its store count relatively stable.

It has shown some signs that sales were perking up late last year. Sales at stores open at least year, a retail gauge known as same-store sales, were up 4.6 percent in the United States in the key holiday selling month of December.

In addition to Goldman, the bookrunners include JP Morgan, Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank Securities, Citi and Wells Fargo Securities.

The company plans to list its shares on the New York Stock Exchange under the symbol "TOYS." (Reporting by Phil Wahba; addition reporting by Supantha Mukherjee in Bangalore; Editing by Gopakumar Warrier, Dave Zimmerman)

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