Hasbro approaches Mattel with takeover offer

Barbie, Transformed? BMO Capital Markets Toys & Leisure analyst Gerrick Johnson weighs in on what a potential Hasbro takeover would mean for the toy world.
November 13, 2017

Pawtucket, Rhode Island-based Hasbro has reportedly approached fellow toy giant Mattel with a potential takeover offer. The potential takeover bid–which would see Hasbro’s My Little Pony and Transformers brands join forces with Mattel’s Barbie and Hot Wheels toys–was first reported by The Wall Street Journal on November 10 (subscription required).

Potential roadblocks for the deal include regulatory and anti-trust issues. According to BMO Capital Markets Toys & Leisure analyst Gerrick Johnson, an amalgamation between Hasbro and Mattel would control approximately 25% of the worldwide mass-market for traditional toys, as well as significant portions of the US and domestic mass markets (30% and 40%, respectively).

“This merger [between Hasbro and Mattel] has been tried several times in the past and regulations were a problem, anti-trust was a problem,” Johnson tells Kidscreen. “I would point out that, right now, there are toy companies that are more competitive than we’ve ever had before. You’ve got LEGO, Spin Master, Just Play and MGA Entertainment. In fact, of the top-five toy items or toy lines out on the market right now, none of them are Hasbro or Mattel. One could make the point that there are better competitors out there now, and that could be a counter-balance.”

In a BMO Capital Markets release, Johnson estimated that Mattel’s power brands–Barbie, Fisher-Price, Thomas, Hot Wheels and American Girl–could be worth more than US$8 billion. Additional brands including He-Man and Polly Pocket could add more than US$2 billion to the toymaker’s value. And, given Mattel’s stable of IPs, Johnson theorized an entertainment company like Disney, Viacom or Time Warner could potentially emerge as another bidder.

“Disney probably wouldn’t want to get into the wholesale toy business that Mattel and Hasbro are in, but they would love to have access to intellectual property like Barbie or Hot Wheels,” Johnson says. “They could do a lot with that IP. They could sell off the toy manufacturing business and do what they do with Star Wars and Marvel, and license out those properties to Spin Master or Hasbro, or someone else.”

Following a nearly 18% increase in its stock price so far this year, Hasbro is boasting a market value of about US$11 billion. Mattel’s shares have declined by 47% in 2017 to approximately a total of US$4.8 billion. In after-hours trading, following the news, shares at Mattel jumped around 24%, while shares at Hasbro rose about 3.3%.

After Toys “R” Us filed for bankruptcy protection in the US and Canada in September, Mattel reported its worldwide net sales declined by 13% to US$1.56 billion in Q3, while worldwide gross sales also fell by 13% to US$1.71 billion. Following these results, Mattel announced its quarterly dividend will be suspended beginning in Q1 2018 in an effort to increase financial flexibility, strengthen the balance sheet and facilitate strategic investments. Hasbro, meanwhile, saw its revenue rise by 7% to US$1.8 billion in Q3 2017.

However, Johnson points out that earlier this year Mattel announced a five-pillar strategic plan designed to see the toymaker make strides in creating digital content, internet-connected toys and products that promote learning.

“Mattel seems pretty optimistic that its turnaround plan will unlock value and improve the monetization of its brands, as well as decision-making, product development and distribution, and content creation,” Johnson adds. “They’re feeling pretty good about that, so why would they sell out here, at this very depressed level, without giving that turnaround plan the opportunity to work?” Given these unanswered questions and more, Johnson says a Hasbro-Mattel merger is unlikely to occur in the near future.


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