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Hasbro-Mattel Merger Talks Resurface, Terms Kept Under Wraps

Zacks Equity Research

Per a recent Wall Street Journal report, Hasbro, Inc. HAS has made an offer to take over beleaguered rival Mattel, Inc. MAT.

Following the news, shares of Hasbro rallied more than 3%, while that of Mattel rose nearly 24% in after-hours trading on Nov 10.

Inside the Headlines

Details of the deal have been kept under wraps as it may not officially materialize. Also, reports suggest no instance of any company-owned statements regarding the merger.

However, if the deal materializes, it will bring together two of the largest toy manufacturers in the United States.

In fact, these major toymakers have engaged in merger talks at least twice in the last two decades.

Why Mattel?

We note that the toy industry scenario has been tricky for companies like Hasbro, Mattel and JAKKS Pacific, Inc. JAKK due to declining demand for traditional toys. Owing to the growing demand for a broad array of alternative modes of entertainment, including video games, MP3 players, tablets, smartphones and other electronic devices from companies like Electronic Arts, Inc. EA, U.S. toy makers are facing a decline in sales.

Moreover, the recent Toys ‘R’ Us bankruptcy aggravated matters. Mattel has been particularly affected by the bankruptcy as the company stated it as a reason for its year-over-year decline in revenues and profits in third-quarter 2017. The effect of the bankruptcy is expected to linger in the upcoming quarters as well.

Moreover, Mattel suspended its dividend and adopted a cost-cutting drive to counter the weak top-line performance.

Thus, the rumored deal can prove to be beneficial for the companies. It could create the most preeminent toy company bringing together Hasbro's My Little Pony, Monopoly and Nerf brands with Mattel's Barbie dolls and Hot Wheels toys. The combined entity is likely to have a competitive edge with enhanced pricing power to negotiate with entertainment studios over TV and movie franchises.

In fact, Hasbro’s shares have rallied 17.5% so far this year, valuing the company at around $11 billion. Meanwhile, Mattel has a market value of about $5 billion after the company’s shares lost 47% year to date. This makes Mattel an appealing takeover target for Hasbro.

Bottom Line

Hasbro has been on the lookout for takeover targets to diversify its revenue stream for long. A deal with Mattel will also help the company deal with the troubles plaguing the broader industry.

Now, it is to be seen whether the merger, if it goes through, will be able to alter the fate of these leading toymakers.

Hasbro carries a Zacks Rank #4 (Sell), while Mattel has a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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