And Mike, Whoever Ends Up With the Most Toys Wins

To: Michael Eisner

Walt Disney Chairman & CEO

From: Mickey the Agent

Re: Mouse in Toyland

Hey, Mike! Congratulations on that Mighty Ducks hockey franchise . . . Brilliant move! Tribune Co. has made a fortune owning the Cubs, Ted Turner has done gangbusters with his Braves and Hawks, and now Disney has its very own sports franchise for programming, merchandising and licensing. Smart. (Can you believe the fans whining about the name Mighty Ducks? This from a league with a team named after a leaf.)

But I gotta be honest, Mike. For an outfit the size of Disney, the Mighty Ducks will be a puny cash cow. You need to think BIG! You need to think GLOBAL! You need a bold stroke that transforms Disney’s future opportunities even as it reaffirms the company’s traditional creativity.

So have I got a deal for you. Sure it’s pricey, but isn’t achieving your vision of turning Disney into the ultimate family company worth the money? Don’t you want to run the company that defines pop culture for kids of all ages?

Then don’t just buy a television or cable network--buy the retail network that’s already wired into every prosperous parent’s pocket. Acquire Toys R Us!

That’s right, the world’s largest toy seller. Think about it. They have the same target audience as you. They’re big--more than $7.2 billion in annual revenue. They’re profitable. They’ve got 540 toy stores and more than 200 children’s clothing stores in the United States and more than 165 stores worldwide. They’ll get more than 500 million shoppers this year. Incredible, huh?

And Mike, they dominate the U.S. retail toy market, with about a 20% share. They know what toys and games Nintendo, Sega, Mattel, Tomy and Hasbro are planning for the future. They know what children--and their parents--buy when they shop for toys. They know the families you have and the ones you really want.

Toys R Us has the image assets, knowledge assets and relationships assets that matter to you. This enormous retail channel gets you insights and access into your customer base in ways that no cable or broadcast channel ever could.

But what am I going on about? A guy like you understands this intuitively. You’ve already got, what, more than 200 Disney stores worldwide? You were opening one a week last year. And you appreciate that there’s more to retail than just peddling; you’ve got to create a fun and compelling experience as well. That’s what Disneyland and Disney World are all about. Am I right?

That’s the beauty part. Don’t just think of Toys R Us as a global network of profitable toy stores; think of it as a global network of profitable theme parks! Disney has the talent and expertise to use “imagineering” to turn an ordinary Toys R Us into a Disney experience. You can have Disney characters stage shows there. You can set up rides and galleries that will get the kiddies and their parents hungry for the full Disney treatment in Anaheim, Orlando, Tokyo or Paris. Toys R Us would feed your theme parks. You could even charge admission, for God’s sake!

You could network the stores with fiber optics so the little nippers in San Francisco can play Disney video games with kids in Dallas. Maybe you’ll set up virtual reality arcades to lure families in. You can use the stores to prototype, test and refine Disney events planned for the theme parks. You can test-market movies, videos and television programs at the stores. You can breed new characters there and see how children respond. Why not offer a special Disney Shopping Channel for Toys R Us?

OK, OK, maybe I’m getting carried away. The Federal Communications Commission hates these media-merchandising deals. And you wouldn’t want to completely Disney-fy Toys R Us. Toys R Us is a valuable product in and of itself.

But you have skills and talents they need to continue growing, just as they have a global reach and customer base you need if you want to consolidate Disney’s position as the company that gives value to family leisure time.

Look at the numbers, Mike, and you’ll agree that this is a doable deal. Disney’s market value is about $24 billion; Toys R Us is worth about $12 billion. Both companies are trading roughly at price-to-earnings multiples of 27. If you do a straight merger by pooling stock, you can minimize the tax bite and any dilution of earnings. The Street will love it.

And Mike--one more important number. Charlie Lazarus, your counterpart over there at the mother of all toy store chains, is pushing 70. He may be ripe for the right offer. Do it, Mike. Walt would have approved.

Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times.