Tonka Corp., the nation's third-largest toy manufacturer, on Monday predicted substantial fourth-quarter and 1990 losses and said it has been involved in talks about a possible sale of the company.
Tonka did not identify any potential buyer. The company said the discussions are preliminary and that there was no assurance they would continue or result in a sale.
Analysts said a sale of Tonka may be necessary, given its heavy debt load and anticipated substantial losses.
Some analysts said Mattel Inc. may be interested in acquiring Tonka. Mattel declined to comment on the rumors. However, in the past, the El Segundo-based toy maker has considered "acquisitions on an ongoing basis," said spokesman Glenn Bozarth. "We are interested in opportunities that involve strong consumer franchises and opportunities to expand into toy categories where Mattel does not currently have a strong position."
Industry analysts and consultants said Mattel would be most interested in Tonka's Parker Bros. game division, where Mattel is extremely weak. "Parker would give them instant credibility in the game business," said an industry consultant who asked that his name be withheld. "It really would round out the firm."
However, Mattel and others will have to dig deep into their pockets to win Parker Bros. "There are few gems left in the toy business, and there is no question that (Parker Bros.) is one of them," said the consultant. "Parker Bros. is not going to go cheap.'
Tonka, maker of Tonka trucks, Play-Doh and the Monopoly board game, said it expects substantial losses in the 1990 fourth quarter and for the full year.
Tonka took on $555 million in debt when it acquired Kenner Parker Toys Inc. in 1987.
"It is not surprising that they are considering options," said Carol Palmer, analyst at Duff & Phelps.
Another major toy maker, South San Francisco-based Lewis Galoob Toys Inc., said Friday that it has retained Bear Stearns & Co. to explore financial alternatives, including the possible formation of "strategic alliances."
Citing slow retail sales, Galoob reiterated a forecast of a "significant loss" of $3.30 to $3.50 per share for the year. Galoob makes the Micro Machines line of miniature vehicles and Bouncin' Babies battery-operated dolls.
Tonka estimated that its sales for 1990 would be about $786 million, down from $870.5 million in 1989.
For the first nine months of 1990, Tonka reported a loss of $25.4 million, or $1.74 a share, on sales of $541.3 million. For all of 1989, Tonka reported a profit of $7.7 million, or 90 cents a share.