Mattel Plans to Buy Pleasant for $700 Million

Looking to further cement its position as the world’s No. 1 toy maker, El Segundo-based Mattel Inc. said Monday that it has agreed to buy Pleasant Co., the nation’s second-largest doll maker.

Only Mattel’s tried-and-true Barbie doll is a larger seller than Pleasant’s popular mail-order line of American Girl dolls.

“We have acquired probably one of the blue-chip girls’ [toy] brands of all time,” Mattel President and Chief Executive Jill Barad said of the $700-million deal with Pleasant, headquartered in Middleton, Wis.

Along with the historically inspired American Girl dolls, the privately held company also sells accessories for its dolls including clothing, furniture and books. It publishes a magazine that every two months provides 700,000 subscribers with a mixture of American history and stories chronicling the adventures of its dolls.

This year alone, Pleasant is expected to gross about $300 million in sales.

Securities analyst Margaret Whitfield of Tucker Anthony Inc. in New York said the move is in keeping with Mattel’s recent penchant for buying toy companies with a strong domestic presence but limited international market share. In the last five years, the company has bought Fisher-Price and Tyco Toys, whose international sales accounted for no more than a quarter of all revenue at the time of their purchase, she said.

“Mattel has always been looking for strong domestic brands that it can leverage through its global distribution network,” Whitfield said. The acquisitions are part of Mattel’s attempts, she said, to push international sales to more than half of all company sales in an effort to cash in on foreign markets that contain 97% of the world’s children.

The toy maker also said Monday that second-quarter sales volume and earnings would be lower than analysts’ expectations, blaming cutbacks in orders by one of its largest customers, Toys R Us Inc. The Paramus, N.J.-based toy retailer, the nation’s largest, announced earlier this year it intended to eliminate $500 million in inventory by the end of next year in an effort to stem the loss of its market share to discount operations such as Wal-Mart Stores Inc.

Mattel on Monday reported a reduction in sales to Toys R Us of at least $70 million compared with the second quarter last year. Mattel spokesman Glenn Bozarth said earnings per share for the quarter will be 20 cents, down five cents from analysts’ predictions. Still, he said, Mattel expects to post year-end growth in earnings per share of 18% compared with 1997, due in part to the acquisition of Pleasant Co.

The two companies don’t plan to finalize the deal until late summer or early fall, but Whitfield said she expects Mattel will realize $200 million in revenue from the acquisition, mostly from the holiday sales rush.

Bozarth said Mattel and Pleasant began talking in January after both were contacted by New York-based investment bank firm Allen & Co.

In an interview Monday from Mattel headquarters, Barad said the niche of 7- to 12-year-olds for Pleasant’s American Girl dolls is a perfect complement to the primary market of 2- to 7-year-olds for Mattel’s best-selling Barbie doll.

American Girl dolls are larger and more lifelike than Barbie and cost roughly $65 more than Barbie’s average retail price of $10 to $15. American Girl dolls and most accessories are sold exclusively through mail order.

In fact, Barad said, it was partly Pleasant’s “state-of-the-art” direct-mail marketing as well as integration into its offerings of books and magazines chronicling the adventures of its toys that made it an attractive acquisition.

Mattel is already looking into ways to use Pleasant’s direct-mail system for its collector Barbie, Hot Wheels and Matchbox car sales along with its Fisher-Price brand of toys, Barad said.

“Fisher-Price is directed at moms, and I think moms would like to have more information about what our products are going to do to enhance the development and education of their children,” she said.

Barad said Mattel is also considering launching books and magazines about some of its own toy lines, potentially making them more attractive on the retail shelf and providing the company other sources of revenue. In addition, she said, the publications could help “enhance the experience our toys are supposed to provide.”

Under the buyout, Pleasant Co. will keep its Wisconsin facilities and operate as an autonomous unit of Mattel. Pleasant founder and President Pleasant Rowland, who founded the company in 1985, will become a vice chairman and director of Mattel.

Mattel shares dropped 56 cents in New York Stock Exchange trading Monday, closing at $38.06 on volume of nearly 2 million shares.