Bankruptcy court approves landmark domain name sale.

Judge Brendan Shannon of the United States Bankruptcy Court District of Delaware has approved Toys ‘R’ Us purchase of the toys.com domain name for $5.1M.

The domain name was auctioned last Friday as a continuation of an auction held the first week of February. In the original auction Faculty Lounge Partners bought the domain for $1.25M. As part of the sale to Toys ‘R’ Us (bidding as Eagle, LLC), Faculty Lounge Partners will pick up a $37,500 break up fee (3% of its stalking horse bid) and legal fee reimbursement.

Interestingly, Toys ‘R’ Us was at the first auction but wouldn’t top the $1.25M Faculty Lounge Partners bid. Instead, the toy company bought certain assets of eToys including eToys.com and customer lists.

The domains were auctioned off after The Parent Company, parent company of eToys, filed for bankruptcy in December. Other domains auctioned off in the initial auction included hobbies.com, birthdays.com, and pinata.com.

Reauction of Toys.com goes for $5.1M.

It’s not over yet (subject to court approval), but it looks like Toys ‘R’ Us will be purchasing the Toys.com domain name for $5.1M. The company outbid National A-1 Advertising in an auction that was live blogged on DirectNavigation.com. (DirectNavigation.com is written by Larry Fischer, who attended the teleconference auction in his role with Faculty Lounge Partners.)

The domain originally sold for $1.25M in an auction that Toys ‘R’ Us participated in. So it begs the question, why four times as much now?

Sources tell Domain Name Wire that there was some horse trading in the initial auction. Faculty Lounge Partners bought Toys.com and Toys ‘R’ Us bought eToys. We’ll see what kind of horse trading went on when we see the original auction’s transcript next month.

The eToys estate isn’t the only winner today. Faculty Lounge Partners will get a break-up fee of about $150,000 $37,500 plus legal fees. $37,500 is 3% of Faculty Lounge’s bid of $1.25M.

I bet eToys (The Parent Company) creditors will be wondering how the law firm Pachulski Stang Ziehl & Jones LLP blew the initial auction. [Update 2-28-09: It has come to my attention that the law firm may not be on the hook for the results. They were there to collect offers and run the auction, but a separate party was supposed to get buyers. I’ll get more details and update this story.] If Toys.com sold for 4 times what it did in the original auction, were the other domains sold below value? All the law firm had to do was send a press release about the original auction and the results would have been drastically different.

Here’s a time line of the Toys.com saga:

February 5, 2009: Domain Name Wire first reports about the closely held auction for domains from The Parent Company, owner of eToys.

February 6, 2009: Based on tips from multiple sources, DNW suggests that the buyer of eToys.com and related properties is Toys ‘R’ Us, which attended the auction as “Eagle LLC”.

February 6, 2009: Domain Name Wire learns that at least one company that wasn’t at the original auction intends to challenge the Toys.com sale.

February 12, 2009: After receiving court approval, Toys ‘R’ Us announces it was the buyer of eToys.com.

February 18, 2009: DNW learns that Toys.com will be auctioned again and the previous auction winner, Faculty Lounge Partners, will be the stalking horse bidder.

February 26, 2009: All bidders complete asset purchase agreements, Toys ‘R’ Us, National A-1, and Frank Schilling among the bidders.

February 27, 2009: Toys.com sells for staggering $5.1M.