An unsolicited proposal to buy the second largest toy company Hasbro Inc
After some preliminary discussion on January 24, 1996, Mattel made an unsolicited proposal to buy the second largest toy company, Hasbro Inc. Their proposal indicated a fundamental reorganization in the toy industry. The Financial Times (January 27, 1996) stated, “Barbie fluttered her eyelashes at GI Joe and the hearts in Toy Town skipped a beat!” Mattel was strong in dolls with its market leaders Barbie and Ken and was developing joint products with Disney and others. Hasbro was strong in toys for boys such as GI Joe and Tonka trucks as well as in board games. Hasbro’s reaction was to cry, “Monopoly” (one of its board games). Both firms had gaps in creating electronic toys in which foreign competitors such as Nintendo and Sony were leaders.
The phenomenon price of Mattel was $32 per share and that of Hasbro was $30.625. The Mattel offer of 1.67 shares for one share of Hasbro placed a value of $53.44 per share on Hasbro, representing a premium of 74%. Because Hasbro objected immediately, the Hasbro price never went above $40. The price of Mattel moved up by about $1. With 225 million shares, the wealth of Mattel shareholders increased about $225 million. For Hasbro, with 97 million shares outstanding, shareholder wealth increased by almost $1 billion.
Negotiations continued, but Hasbro continued to raise antitrust objections. Finally, on February 3, 1996, it was announced that Mattel would withdraw its offer for Hasbro. John Amerman, the Mattel chairman, stated that in a friendly deal the antitrust barriers could have been resolved in about five months (Wall Street Journal, February 8, 1996, p.B8).
But with the obstacles thrown up by Hasbro, the legal complication would have continued for as long as two years. Mr. Amerman stated that at the end of three years the earnings per share for Mattel would have been unchanged from current projections. He concluded by stating, “why raise our risks?”
The Hasbro stock dropped back to $34.625. The Mattel stock stayed at about $33, about $1 above its prebid price. Mattel said that the costs related to the failed bid would lower their earnings per share for 1996 by about 1cent.
- What would have been the business advantages of the combination? (15 marks)
- Would the combination have created market power in the production and distribution of toys? (15 marks)
- From the standpoint of U.S. public policy, evaluate the desirability of the combination. (15 marks)
