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Fairfax Financial Holdings Ltd., the investment firm run by billionaire Prem Watsa, signed an agreement to buy the Canadian unit of Toys “R” Us Inc. for about $300 million.

The so-called stalking horse bid allows other potential buyers to enter competing proposals by Monday, according to a U.S. bankruptcy court filing submitted by Toys “R” on Thursday. Fairfax would then have the option of either increasing its offer or walking away. Under the terms of the deal, Fairfax would receive a break fee of about 3 per cent if another bidder is chosen.

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After the takeover, Fairfax would be able to continue operating Toys “R” Us stores in Canada under the existing name. The deal would follow a Fairfax-backed consortium’s purchase of athletic equipment maker Performance Sports Inc. last year, a process that was also overseen by a bankruptcy court.