A Race to Rule the Sandbox : Mattel-Hasbro War Has Transformed U.S. Toy Industry
It’s no “Mortal Kombat,” this head-to-head competition between Mattel and Hasbro over a British game company, but it’s no mere friendly game of tag, either. Their rivalry dominates toy making in the United States--and probably the world--transforming what just recently was an industrywide consolidation into a two-company race to superiority and stability.
That the latest acquisition target is J.S. Spear & Co., owner of the overseas rights to Scrabble, demonstrates how each of the companies is looking to add muscle while decreasing vulnerability amid the cycles and fickle consumer tastes that can take the fun out of the toy business.
Analysts say the Mattel-Hasbro competition will continue, most likely focusing on product lines or companies that can enhance each’s position in core industry segments and international markets.
“Both companies are growing in a consolidating industry, both have capital and both will compete on anything that’s around, within reason,” said Thomas R. Kully, securities analyst with William Blair & Co. in Chicago.
El Segundo-based Mattel is clearly looking for more board games, a segment thoroughly dominated by Hasbro. Last week it offered $78 million for Spear, more than 10% higher than Hasbro’s earlier bid of $70 million.
For Hasbro, based in Pawtucket, R.I., the attraction to Spear is more than solidifying its hold on Scrabble, which it sells domestically; it wants to increase its share of overseas markets, where Mattel leads.
Like two kids on a seesaw adding sand to their pockets, recent acquisitions by Mattel and Hasbro are keeping them very nearly balanced in terms of annual sales. Last year, Mattel bought Fisher-Price in a $1-billion deal that put it within $50 million of reaching Hasbro’s $2.747 billion in sales. Tyco Toys was a distant third, posting sales of $730 million in 1993 and a loss of nearly $70 million.
So far this year, Mattel has bought the maker of Hula Hoops and Frisbees, and Hasbro has paid $105 million for Western Publishing’s games and puzzles division. Simply adding up last year’s sales of all the players, Mattel would be ahead this year with revenue of $2.879 billion, compared to $2.847 billion for Hasbro.
Hasbro could retake the lead with the addition of Spear, which had roughly $60 million in sales last year. Spear’s board is reportedly leaning toward the Mattel offer--which Hasbro contends was made too late under London Stock Exchange rules--but observers haven’t ruled out a second round of bidding.
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This acquisition game, however, is more complicated than sales numbers, which both Hasbro and Mattel know can change in the wink of a trend.
Each is looking to shore up weaknesses, said industry analyst John G. Taylor of L.H. Alton & Co. in Portland, Ore.
In addition to board games, Mattel is still lacking in action figures and other toys--besides miniature cars--that appeal primarily to boys. Its Hot Wheels line is strong, and its acquisition of Aviv three years ago gave it a solid line of activity and sports-related toys. Hasbro has G.I. Joe, which has regained some of its popularity but remains a second-tier entrant in action figures.
But each company rejected an offer of licensing rights to Mighty Morphin Power Rangers, currently the hottest action figure toys ever to disappear from toy store shelves. And neither company would be particularly interested in buying a maker of action figures, Taylor said.
Instead, they’re searching for “evergreen” products that can withstand not only the boom-bust cycles of fads and the post-Christmas doldrums, but spawn generations of products and span generations of consumers.
Hasbro is a more broadly based company than Mattel and thus has more cushion against the whims of popularity. It has tried and failed many times to crack into the U.S. fashion doll segment, where Mattel’s Barbie is undisputed queen; however, through earlier acquisitions it acquired leading or second position in fashion doll markets in France, Britain and Germany.
Still, Mattel--which in 1992 made more than half its sales and nearly half its profits overseas--has a broader distribution network internationally--which analysts say will be the toy industry’s major growth area.
The Toy Market
Major toy manufacturers’ share of the $11.7 billion U.S. toy market, ranked by 1993sales:
1. Hasbro: 14% 2. Mattel: 12.5 3. Tyco: 4.0 4. SLM International: 1.0 5. Galoob: 1.0 6. Revell-Monogram: 0.5 7. Other: 67.0
NOTE: The figures for Mattel are pro forma; they reflect the company’s merger with Fisher-Price for the entire 1993 period. Videogame companies are not included in this chart.
Source: Laurie Lively Smith, analyst at The Seidler Companies.
Researched by ADAM S. BAUMAN / Los Angeles Times
