Jakks Pacific to Settle Toymax Investor Suit

Malibu toy maker Jakks Pacific Inc. agreed to pay $725,000 to resolve an investor lawsuit questioning the fairness of its $54.5-million acquisition of Toymax International Inc.

Jakks, which makes World Wrestling Entertainment action figures, said last year that it would pay $3 in cash and $1.50 in stock for each share of Toymax, a 48% premium at the time. Toymax shareholder Harry Young Jr. sued in Delaware Chancery Court saying the stock was worth more.

After negotiations among lawyers, Jakks said it would distribute $725,000 to former Toymax shareholders. Investors’ lawyers would get as much as 30% of that sum in legal fees, subject to a judge’s approval at a later hearing.

The action was dropped, in part, because the settlement was “in the best interests” of shareholders, Young’s lawyers said in court papers. Jakks said the buyout, which was completed in October after acquisitions of Britain-based Kid Biz Ltd. and Pentech International Inc., would make Jakks the third-largest U.S. toy maker.

When it announced the purchase of Toymax, which makes Creepy Crawlers, Jakks said it hoped to reach $1 billion in annual sales by 2005. Jakks reported $310 million in fiscal 2002 sales.

El Segundo-based Mattel Inc. is the largest U.S. toy maker, with $4.88 billion in fiscal 2002 sales, followed by Rhode Island-based Hasbro Inc., with $2.81 billion in fiscal 2002 sales.

Despite a sluggish economy, Jakks expects to achieve at least 10% growth this year, Joel Bennett, the company’s chief financial officer, said last month.

Bennett said Jakks now holds a 2% share of the $16-billion U.S. wholesale toy market, and the company has $70 million in cash and an unused bank credit line.

Jakks Pacific shares rose 1 cent to $9.72 on Nasdaq on Thursday.