Mattel to Buy Tyco Toys for $755 Million
Mattel Inc. on Monday announced an agreement to buy Tyco Toys Inc. in a $755-million stock deal that would move Tyco’s Matchbox cars and Sesame Street figures into the House of Barbie.
El Segundo-based Mattel, which also makes the popular Hot Wheels and Cabbage Patch Kids, said the combined company will have $5 billion in sales and 19% of the U.S. market in its first year. Mattel currently has about 16% of the market.
Tyco, based in Mt. Laurel, N.J., is the nation’s third-largest toy maker behind No. 1 Mattel and No. 2 Hasbro Inc. The deal with Tyco comes nine months after Mattel withdrew a $5.2-billion offer to buy Hasbro. Hasbro resisted Mattel’s offer, contending that federal regulators would have blocked a deal on antitrust grounds.
In contrast, the proposed Mattel acquisition of Tyco would be a friendly transaction that would create little or no regulatory controversy, industry analysts said. Tyco’s shareholders will be asked to approve a deal under which they would receive $12.50 in Mattel stock for each full share of Tyco stock.
The Mattel offer is a 78% premium over Tyco’s closing share price of $7 on Friday on the New York Stock Exchange. On Monday, Mattel shares dropped 75 cents to close at $29.875, and Tyco shares soared $4.50 to $11.50 on the New York Stock Exchange.
“It’s a good offer, and Tyco shareholders have to be thrilled,” said Sean McGowan, an analyst at Gerard Klauer Mattison in New York. “For Mattel, this deal would solidify its position in the market for boys’ toys, because it would be acquiring the Matchbook cars and popular [Tyco] toy cars that are radio-controlled.”
Bolstering the toy lineup for boys has been a strategic goal of Mattel, which has been a leader in playthings for girls and preschoolers, said Jill Barad, Mattel’s president and chief operating officer. She said sales of male action figure toys are more volatile than “wheel” toys, such as those produced by Tyco.
“This deal would give us stability in the boys’ toy category,” Barad said. “This is the perfect building block . . . because it’s more predictable.”
Mattel executives were also attracted to Tyco’s plush-toy lineup, including the hot-selling Doodle Bear and Tickle Me Elmo, a toy that giggles and shakes when tickled.
Tyco has been consolidating its toy line--dropping less profitable products, such as action figures and smaller dolls--in a bid to rebound from losses the last three years. The company’s earnings surged in 1991 and ’92 on the sale of such toys as the Incredible Crash Dummies and the Little Mermaid, a Disney character.
However, the sale of those two products declined in 1993, the same year Tyco incurred heavy expenses in an ill-fated attempt to expand its sales operations in Europe. The company had a loss of $69.9 million that year.
The company scaled back and restructured its European operations and the loss declined to $30.4 million in 1995. Tyco then elevated Chief Operating Officer Gary Baughman to chief executive in 1996. Analysts say the company is poised to make a small profit this year.
Baughman has agreed to remain with a combined Mattel-Tyco, said Mattel’s Barad, who initiated the merger talks about six weeks ago. Barad is heir apparent to Mattel Chief Executive John Amerman, who is expected to retire next year.
Amerman said the proposed Mattel-Tyco deal would not create anti-competitive conditions in the toy industry, saying it is relatively easy for new companies to enter the business and noting that the major companies have relatively small percentages of the overall market.
Antitrust lawyers tended to agree.
“This deal shouldn’t be a problem, because sales are widely dispersed,” said Vincent Amberly, an antitrust litigator at the McLean, Va., law offices of Miles & Stockbridge.
A Mattel-Tyco deal would be a new challenge for Hasbro, which has 12% of the $13-billion toy market, 4 percentage points less than Mattel and 7 percentage points less than a combined Mattel-Tyco.
Hasbro has been a merger candidate, and the company will continue its search for a takeover target, said David Leibowitz, an analyst at Burnham Securities in New York. Hasbro executives were not immediately available for comment.
Industry analysts said a combined Mattel-Tyco would have more leverage over retailers, including the clout to get more shelf space in stores. However, some retailers might be pleased with a merger because Mattel would be able to bolster marketing and advertising programs for Tyco toys, analysts said.