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Toysrus.com receives $57 million Softbank investment

The online unit of Toys "R" Us is redoubling its Web efforts after Japan's Softbank plunked down a $57 million minority investment in the beleaguered toy e-tailer.

Toysrus.com is redoubling its Web efforts after Japan's Softbank today plunked down a $57 million minority investment in the beleaguered online toy retailer.

Toysrus.com also received an additional, undisclosed minority equity investment from three other private venture firms: The Blackstone Group, KKR & Company and Evercore Partners. The investments come just six months after blue chip venture firm Benchmark Capital pulled its investment from Toysrus.com because of a dispute over which company would run the Net venture.

The capital will be used to accelerate the development of Toysrus.com's infrastructure and to support future growth, the company said.

The online toy retailer needs all the help it can get after a turbulent holiday shopping season left it nearly unfit to play against the growing list of sites selling toys, including eToys, Amazon.com and Toysmart.com. Toysrus.com captured tremendous negative attention when it was unable to meet the surging demand on its site.

At the end of the busy shopping period, Toysrus.com was slapped by a class action lawsuit claiming the e-tailer deceptively accepted orders it could not deliver in time for the holiday. In January, the company said it had accepted too many orders at the time, preventing pre-Christmas delivery of thousands of packages. At the time, the company promised $100 coupons to customers who did not receive their goods in time.

Still, Softbank's Venture Captial and Capital Partners divisions have high hopes for Toysrus.com.

"Toys "R" Us is one of the few true global retail brands--its name is as well-known and as popular as Disney and McDonald's throughout the world," Gary Rieschel, executive managing director of Softbank Venture Capital, said in a statement. "Toysrus.com is uniquely positioned to become the global leader for children's products on the Internet."

Also under the terms of the deal, Softbank's two U.S. venture funds purchased warrants at a cost of $10 million to acquire 1.2 million shares of Toys "R" Us common stock at $13 per share.

Japan's Softbank has had several successes in the Internet sector, including early investments in Yahoo, E*Trade, GeoCities and USWeb/CKS.

Softbank Venture Capital's managing director Rex Golding, who will join the board of directors of Toysrus.com, stressed the company's future potential rather than any recent developments.

"We believe that this is an extraordinary long-term business opportunity," Golding said. "Toysrus.com has all the right ingredients--a great new management team, a powerful brand name, international presence and brick-and-mortar assets."

Toys "R" Us, the parent company of Toysrus.com, has 710 stores in the United States and another 462 stores across the world.

Today's backing left investors unimpressed with Toys "R" Us shares, which remained unchanged in morning trading. The stock was trading at $11.5 and has hit a high of $24.75 and a low of $9.75 during the past 52 weeks.