G.I. Joe and the Real Ghostbusters might join forces. In a deal that would combine two of the nation's leading toy makers, Hasbro Inc. on Thursday agreed to buy debt-ridden Tonka Corp.
The proposed transaction, which most analysts termed a good deal for both sides, valued Tonka at $107.1 million.
It was announced amid a slump in the toy industry, following two weak Christmas seasons in a row, and just three days after Tonka disclosed that it was holding talks about selling itself.
For Hasbro, which is competing with El Segundo-based Mattel Inc. for the No. 1 ranking among U.S. toy makers, the deal would expand its offerings in some categories where the company already is a powerhouse.
For example, Hasbro now owns the nation's top board game company, Milton Bradley, and Tonka has the second largest, Parker Bros., whose products include Monopoly.
Hasbro, which for years has relied on steady sales of such toys as G.I. Joe action figures and My Little Pony, also would acquire some more longtime children's favorites: Tonka trucks and Play-Doh.
In an area where Hasbro is weak--licensed and promotional toys--Minnetonka, Minn.-based Tonka is a major player. Tonka's hits in recent years include the Real Ghostbusters and Batman lines of action figures.
Analysts said they expected the deal to go through, but they acknowledged that it could face resistance from federal antitrust regulators and from holders of Tonka junk bonds, who are being asked to sell their securities at a discount. Approval is required by investors owning at least 90% of both categories on Tonka bonds and by holders of at least half of the company's common shares.
It's also possible that another company could bid for Tonka, the nation's No. 3 toy maker. Mattel, which is thought to have talked to Tonka about a deal, declined comment on Thursday's announcement.
Last spring, Hasbro reportedly negotiated to pay $315 million for another big competitor, Tyco Toys, but the proposal fell apart.
Tonka was pushed to find a buyer after being dragged down by the debt it took on in 1987, when it acquired Kenner Parker Toys for $555 million. During the first nine months of last year, the company lost $25.4 million on sales of $541.3 million.
"For Tonka, it was do or die. They had to find a partner real fast," said Harold Vogel, an analyst with Merrill Lynch & Co.
Although hurt by the toy industry's recent slump, Hasbro is considered financially strong. It earned $61.3 million during the first three quarters of 1990, off 10% from a year earlier, on sales of $1.03 billion.
Following the announcement of a definitive agreement, Hasbro's stock closed at $18.75, off 37.5 cents, on the American Stock Exchange. Analysts said investors may have been somewhat concerned by the more than $400 million in debt Hasbro would incur in the deal.
Tonka's shares, however, shot up $2 on the New York Stock Exchange, closing at $6.50. Its junk bonds also soared.
Mattel's stock climbed $1.625 to close at $21.625. Analysts said investors were pleased that Mattel apparently isn't getting involved in a costly acquisition.
Under the proposed deal, Hasbro would pay $7 for each of Tonka's 15.3 million outstanding shares of common stock. Hasbro also would buy back Tonka's $192 million in 16 1/4% Series A bonds at 80 cents on the dollar and its $130 million in 17 1/4% Series B bonds at 75 cents on the dollar.
In addition, Hasbro would assume Tonka's long-term bank debt and short-term notes. All told, Hasbro would invest $516 million.
Officials at Hasbro headquarters in Pawtucket, R.I., were unavailable for comment. Left unclear were such issues as what roles Tonka's top executives would have in the merged company.
A news release from the companies said Tonka would become a wholly owned subsidiary of Hasbro, but analysts said they expected Tonka's operations eventually to be fully meshed with the parent company's.
TOY MERGER Hasbro Inc.
Nine months ended Sept. 30 1990:
Revenue: $1.03 billion
Net income: $61.3 million
Major Products: G.I. Joe, the Cabbage Patch Kids and Playskool toys; Milton Bradley board games, including Scrabble, The Game of Life and Yahtzee.
Nine months ended Sept. 29, 1990
Revenue: $541.3 million
Net loss: $$25.4 million
Major Products: Kenner and Parker Brothers board games, including Monopoly; Play-Doh, Pound Puppies and Real Ghostbusters toys.