FTC to Probe Mattel’s Plan to Combine With Rival Tyco
Mattel Inc.'s proposed acquisition of rival Tyco Toys Inc. will be delayed by closer federal scrutiny of competitive concerns raised by the deal between America’s No. 1 and No. 3 toy makers.
Mattel said Monday that the Federal Trade Commission has asked the El Segundo-based toy maker and Tyco to provide more information on their proposed $755-million merger agreement announced in November. Industry analysts said the agency is unlikely to stop the merger but that it could seek modifications to the agreement.
Regulators had not been expected to pay close attention to the marriage, which would give the combined company about 19% of the toy market. This is only the second time the FTC has issued a second request for information in an industry rife with merger agreements. (In the last 10 years, Mattel alone has acquired upward of 11 companies.)
Mattel’s stock fell $1.125 to close at $27.875, and shares of Mt. Laurel, N.J.-based Tyco dropped 12.5 cents to close at $11.625. Both companies trade on the New York Stock Exchange.
The move will not significantly delay the companies’ plan to combine, said Glenn Bozarth, a Mattel spokesman. They cannot complete the acquisition until at least 20 days after they answer the FTC’s questions. Bozarth said Mattel had not expected to complete the merger until spring.
The request signals that the FTC is looking closely at the marriage of the maker of Barbie and Tyco’s wildly popular Tickle Me Elmo for possible antitrust violations, said Bonnie Jansen, an agency spokeswoman.
The FTC does not comment on pending investigations, but Jansen said regulators might look at whether the merger would significantly reduce competition in the toy market and how much leverage it would give the combined company to raise prices.
Because the companies hold the majority of the miniature-car market--Mattel manufactures the sleek and sporty Hot Wheels line and Tyco makes the classic Matchbox cars--they would have wide latitude to raise prices, said Garret Rasmussen, an antitrust lawyer at Patton, Boggs & Blow in Washington.
Regulators might also be concerned about the combination of the companies’ preschool divisions, analysts said. Mattel makes the popular Cabbage Patch Kids, and Tyco makes Tickle Me Elmo as part of its Sesame Street line.
“Mattel has leading market share in the preschool category, and this season’s hottest product was Tickle Me Elmo, so a natural question is what will happen in this area,” said Sean McGowan, an analyst who follows the toy industry at Gerard Klauer Mattison, a research and brokerage company in New York.
Although Mattel and Tyco do not dominate toy sales--the top five companies make up only 65% of the market--they hold a much greater share of specific product lines, McGowan said.
They added that regulators probably are scrutinizing the proposed merger more closely as a result of competitive concerns raised during Mattel’s failed $5.2-billion takeover bid for Hasbro Inc., the nation’s No. 2 toy maker. The companies would have dominated several toy categories, including preschool toys.
In other news, the Consumer Product Safety Commission said Monday that it is investigating the safety of Mattel’s battery-operated Cabbage Patch dolls after the dolls reportedly chewed up several girls’ hair. The commission said the chewing mechanism can be disabled by pulling off the doll’s plastic backpack.