Mattel Withdraws Its $5.2-Billion Offer for Hasbro

Toy industry giant Mattel Inc. on Friday withdrew its $5.2-billion offer for Hasbro Inc., saying the No. 2 toy maker’s “scorched-earth campaign” opposing the deal ruined prospects for quick regulatory approval.

Hasbro “elected to take drastic steps, both politically and through the media, to greatly increase the difficulty of achieving a merger in a timely manner,” John Amerman, chairman of El Segundo-based Mattel, said in a letter to its rival Friday.

Hasbro had repeatedly rebuffed Mattel, citing concern that a deal would be blocked by federal regulators. It said Friday that it was “most pleased” that Mattel had withdrawn the offer.

Investors, who had driven up the price of Hasbro stock since Mattel’s proposal was announced Jan. 23, responded to the news with a sell-off. Hasbro shares plunged $6.125, closing at $34.625 on the American Stock Exchange. Mattel shares rose $1.125 to a record $33.625 on the New York Stock Exchange.

“Hasbro’s management won, but Hasbro’s shareholders lost,” said Barry Rothberg, an industry analyst at Furman Selz in New York. “The antitrust issues could have been resolved if Hasbro cooperated. But the antitrust obstacle would have been riskier if Mattel made a hostile bid.”

Indeed, analysts said a merger of the two companies would have faced a more rigorous regulatory review after members of the congressional delegation in Hasbro’s home state of Rhode Island sent letters to the Justice Department contending that a combined company would be so large it would be able to control industry prices.

On another front, Hasbro successfully sought a state law that would have made it more difficult for a hostile suitor to arrange a meeting of Hasbro shareholders.

“Political involvement would have led to heightened [regulatory] scrutiny, which raises the stakes,” said Vincent Amberly, an antitrust lawyer at David, Hagner, Kuney & Krupin in Washington.

Amberly and other antitrust experts said federal regulators would have used the same criteria they normally apply when assessing the anticompetitive risks of a Mattel-Hasbro deal. However, regulators would have examined the issues more closely and may have been more likely to force a combined company to divest assets.

Regulators are more likely to let companies merge operations or product lines that do not overlap. With Barbie and the tot-oriented Fisher-Price division under its roof, Mattel’s strengths are in the fashion-doll and infant-toy categories. With male action figures such as GI Joe and Milton Bradley in its stable, Hasbro is strong in boys’ toys and board games.

However, Hasbro’s Playskool division competes directly with Mattel’s Fisher-Price in toys for young children, and regulators might have forced a combined company to divest those lines as a merger condition.

Bolstering its political assault, Hasbro unleashed a blitz of news media releases and position papers contending that a combined company would have controlled about 40% of the toy market and that regulatory opposition to the merger would have sidetracked Hasbro from toy development and marketing.

In its media counterattack aimed at shareholders, Mattel emphasized that its legal team had concluded that a merger would cut the mustard with regulators.

Mattel could have attempted a shotgun wedding by making a tender offer for Hasbro shares. In his letter, however, Amerman said Mattel from the beginning had ruled out a hostile bid in favor of a friendly stock swap under which Hasbro shareholders would have received 1.6 shares in a combined company for each existing Hasbro share.

Considering their differences on the antitrust issue, Mattel’s decision to withdraw its offer was wise, most analysts said.

“Without this deal, Mattel is still a very profitable company with good prospects for the future,” said Thomas Kully, an analyst at Thomas Blair in Chicago. Most analysts also said the trend toward consolidation in the toy industry will continue.

“Looking forward, I suspect that even Mattel and Hasbro will be on the prowl for new acquisitions domestically and overseas,” said David Leibowitz, an analyst at Burnham Securities in New York. “How this plays out remains to be seen.”