Jakks Pacific to talk with Oaktree Capital about new bid
A long-running takeover bid for Malibu toy maker Jakks Pacific Inc. took a turn toward conciliation with the Los Angeles investment management firm that wants to buy it.
After fending off an unsolicited takeover bid from Oaktree Capital Management, Jakks agreed to give the management firm detailed financial information about the company, setting the stage for another bid.
But a sale of Jakks, one of the nation’s largest makers of action figures, electronics, dolls, costumes and stuffed animals, is far from certain.
Jakks’ board of directors announced Monday that it had authorized its managers to meet with and provide Oaktree information about Jakks, subject to confidentiality agreements. Oaktree made a $670-million bid for Jakks last September, an offer the toy company rebuffed, saying the cash bid to take the company private for $20 a share was too low.
The move Monday to meet with Oaktree was intended to help the investment firm put together a new bid for the company.
“We are inviting them to look at the company so they can be in a position to put in a real offer,” said Joel Bennett, chief financial officer for Jakks.
Oaktree spokeswoman Kimberly Martinez declined to comment Monday, saying “confidentiality agreements and other restrictions often make it impossible for us to comment even in circumstances where we would prefer to share our perspective.”
Jakks stock closed Monday at $18.29, up 4.6%. Its first-quarter sales increased slightly, to $73.4 million, compared with $72.3 million a year earlier. But the company reported a $16-million net loss for the quarter because of financial and legal advisory fees.
The company, founded in 1995, struggled with declining sales during the recession, but Jakks said a new line of toys called Monsuno has been selling beyond the company’s projections.
Even if Oaktree makes another offer, analysts said there was no indication that the toy company’s board was ready to sell. The offer to let Oaktree “look under the hood,” according to one analyst, ensures that Jakks is meeting its fiduciary duty to increase the value of its shares.
“The one issue all along has been that Jakks thinks the company is worth a lot more,” said Edward Woo, an analyst with Ascendiant Capital Markets of Irvine. “I don’t know if that gap will be met.”
Gerrick Johnson, a toy analyst at BMO Capital Markets, agreed that Monday’s actions haven’t made clear if Jakks’ board has changed its mind about a sale.
“I don’t know if it’s their intention to sell the company,” he said. “I think they will still fight that, tooth and nail.”
The toy company’s board also announced Monday that it agreed to dip into the company’s $257 million in cash reserves to buy back $80 million in shares for at least $20 a share. The move would increase the stock’s value by about 10%, according to analysts.
By buying back its own shares, Jakks also ensures that Oaktree’s next bid will likely be substantially higher than the previous offer, the analysts said.
“The whole point is to get the stock price up,” said Woo. “The higher it trades at, the more likely Oaktree will provide a higher price.”
In a related move, Jakks reached an agreement with the Clinton Group, an investment firm that owns about 4.9% of the toy company’s shares and has publicly pushed for a sale to Oaktree. Under the deal, the Clinton Group agreed to support the incumbent board of directors and in exchange will get to approve one of two new independent directors added to the board.
