FAO Inc., the speciality toy retailer that went into bankruptcy twice this year, said over the weekend it agreed to sell parts of its posh FAO Schwarz business, including its flagship store on New York's Fifth Avenue, for $20 million to a unit of D.E. Shaw Laminar Portfolios LLC.
FAO said its sale to VGACS Acquisition Inc., agreed to last Wednesday according to a court filing, includes the FAO Schwarz store in Las Vegas' Forum Shops, FAO Schwarz's internet and catalog businesses, intellectual property rights, clock towers and other fixtures.
New York-based D.E. Shaw & Co. is an investment and technology venture company with more than $6 billion of capital, according to its website.
FAO, based in King of Prussia, Pennsylvania, filed for Chapter 11 bankruptcy reorganisation on December 4, citing dismal holiday sales. It had previously sought protection from creditors in January, and emerged in April.
"We are not surprised that the company sold some of the most legendary icons associated with the FAO Schwarz brand," said Richard Hastings, a retail sector analyst for Bernard Sands in Charlotte, North Carolina. "It appears the buyers envision a wealthy tourist, high foot traffic way of revitalising the stores, with a highly specialised niche."
FAO said a US bankruptcy judge approved the sale of 34 Right Start infant toy stores to an affiliate of Los Angeles-based private equity firm Hancock Park Associates. The company is liquidating its 89 Zany Brainy educational toy stores.
FAO said it will seek bankruptcy court approval for procedures to approve the FAO Schwarz sale, or a better offer, by about January 22. The sale is subject to adjustments, it said. FAO and D.E. Shaw representatives did not immediately return calls seeking comment.
FAO said the buyer will assume FAO's rights under its New York and Las Vegas store leases. FAO said it will sell these stores' inventory, and that the buyer plans to spend about six months remodelling the stores, and then reopening them by next summer under the FAO Schwarz name.
The 141-year-old retailer's second bankruptcy filing came as low toy prices at discounters such as Wal-Mart Stores Inc. and Target Corp. and big toy retailers such as Toys R Us Inc. made it more difficult for smaller retailers, including a rival chain, privately held KB Toys, to compete.
FAO did not say how it might dispose of its other 13 FAO Schwarz stores.