A New York hedge fund beat two rivals yesterday in a hotly contested auction for toy retailer FAO Schwarz, with a winning bid of $41 million, lawyers for the company and its creditors said.
If a bankruptcy judge approves the offer at a hearing scheduled for Monday, the task of reviving the legendary FAO Schwarz will fall to D.E. Shaw. The firm agreed to buy the flagship store in New York, another store in Las Vegas, the online and catalog operations, the unique clock towers and other fixtures.
The firm also will assume certain liabilities associated with the retailer’s operations.
D.E. Shaw, in a tense auction that lasted until 2 a.m., outbid Macklowe Properties, a real estate development firm that owns the G.E. building in Manhattan, where the FAO Schwarz flagship is located, and another investment firm, called Q Investments, lawyers involved in the process said.
The price D.E. Shaw agreed to pay is slightly more than double its original offer of $20 million, which was accepted in December as a benchmark for yesterday’s auction.
FAO filed for bankruptcy protection last month, after a dismal Christmas season that left it unable to match the steep discounts offered by rivals Wal-Mart, Target and Toys ‘R’ Us.
The shakeout in the toy industry is likely to continue. Last week, KB Toys filed for Ch. 11 bankruptcy protection. KB plans to close as many as 500 of its 1,231 stores located mostly in shopping malls as part of its restructuring.