12 November 2017 ~ 0 Comments

Hasbro To Buy Mattel? How Likely Is That?

HASBRO TO BUY MATTEL? HOW LIKELY IS THAT?

Wow – what a topsy turvy year this is turning out ot be for the global toy industry!

After the disappointment of the worst movie box office numbers in more than a decade and the unfortunate Toys R Us situation, reports have been circulating in the last day or so about an alleged approach by Hasbro to takeover Mattel!

While speculation on this topic will keep analysts and journalists buys for the next few days at least, a report of an approach is a long way from the reality of an exxecuted takeover. So how likely is it that one of these two toy behemoths might buy the other? Especially bearing in mind their long term rivalry, perhaps even emnity?

The reality is that is hard to predict unless you sit in certain offices within the companies concerned, however, we can look at some factors which contribute to increasing and decreasing the likelihood:

 

INCREASED LIKELIHOOD FACTORS

New Management At Mattel

So far Mattel’s new CEO, Margo Georgiadis, has made some bold statements and taken some bold steps…as you would expect from someone who came to Mattel from that most disruptive of internet pioneers (Google). Could this mean that an approach from Hasbro’s management to a new Mattel leadership less entrenched in the history of Hasbro vs Mattel is more likely to succeed? I would argue that it could easily be more likely.

Mattel’s Share Price

More pragmatically, when a company’s share price tanks, it costs considerably less to buy, and Mattel’s share price is significantly lower than the $40 peak we saw not that long ago. Therefore Mattel could be purchased for a ‘snip’ of a price based on shire price history.

Hasbro’s need for growth

Hasbro CEO Brian Goldner has been hugely successful. I left Hasbro’s employment soon after he joined, since which Hasbro’s share price has more than quadrupled. Mr. Goldner’s strategic vision to move Hasbro closer to Hollywood has proven to be both the right strategy and the right long term vision thus far. However, like all strategies, it is hard to keep growing forever using the same strategy/in the absence of significant acquisition. Mattel and Hasbro have largely (albeit not entirely) complimentary Brands. Mattel’s strength in what was once called ‘Girls’ and the strength of their Fisher Price business in what is still called ‘Infant/Preschool’ compliments Hasbro’s strength in what was ‘Boys’, especially movie action figures and playsets and Games. Imagine a company which could boast all of the following iconic and highly lucrative brands: Barbie, GI Joe, Fisher Price, Monopoly, American Girl, Furby etc.

Major license savings

This factor has already been highlighted in the media. The idea being that the historical competition between Hasbro & Mattel to win the hottest licenses has in fact increased the total licensing costs for both parties. Therefore (so this strand of thought from the media suggests) should the two erstwhile competitors become one entity, major licensees would not be able to get the two to bid ecah other up for licensed rights. This factor could in theory be particularly motivating to Hasbro as a defensive measure, as they currently have so many licenses from Disney for instance (including Marvel, Disney Princess, Star Wars etc). The reality may not prove to deliver quite so many cost savings as expected due to the strong deal making skills of Disney, but it could at least be a driving factor in any attempted takeover of Mattel by Hasbro.

 

DECREASED LIKELIHOOD FACTORS

Competition concerns

This factor is routinely mentioned when the idea of a Hasbro-Mattel merger or takeover has arisen over the years. However, I have no evidence to offer here, you would need to talk to the authorities to gauge how they would see this one!

Corporate Ego & Self interest

Clearly a Hasbro takeover or even a joint merger would lead to ‘synergies’ – that most horrible and unfeeling euphemism for job losses. Therefore, it would seem likely that there could be quiet significant forces of resistance should the alleged takeover turn into reality.

Transaction Cost

The speculation of a takeover could lead to increased valuations for both companies which may inadvertently make the takeover itself less viable.

Clearly there are other factors that may have an influence beyond those I have highlighted here, but one thing I would confirm is that in my opinion, a takeover or merger seems more likely/possible than at any other time in recent history. Mattel’s current weakness and Hasbro’s need to acquire to continue to grow seem to point towards this transaction being more likely than ever before. However, as this topic has arisen every few years for as long as I have been in the toy business, and never happened yet, more likely doesn’t equal going to happen!

Either way though, these are interesting and challenging times in the toy business. But thank the heavens for demographics – global population growth will ensure the toy industry will grow in the medium to long term regardles of short term fluctuations and any seismic shift in the market place/among the global toy behemoths!

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