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Mattel Rightly Rejects MGA Entertainment’s Vague Buyout Bid

Mattel (NASDAQ:MAT) is betting that its better-than-expected first-quarter earnings results mean it’s turned the corner, and that it can therefore afford to go it alone. The toymaker has rejected a second buyout offer from privately held MGA Entertainment, and based on the conditions Reuters says MGA wanted to impose, management was correct to do so.

Tie-up talks are nothing new

Sales have been sliding for Mattel, which posted revenue of $4.5 billion in 2018, down 7.6% from the prior year and some 25% below the figure from five years ago. But Barbie has made a comeback, Matchbox and Hot Wheels are no longer spinning their tires, and a new management team finally intends to use its portfolio of brands to make theatrical-release movies, much the way rival Hasbro (NASDAQ:HAS) has monetized its toy box.

Image source: Mattel.

Although there have been rumors over the years that Mattel might merge with Hasbro — and even some actual negotiations — that all came to naught, likely in large part because an attempt to unite the two giant toymakers would attract significant antitrust attention.

The combination of Hasbro and Mattel today would control as much as 33% of the toy market, and while that shows how fractured and diversified the industry is, its annual revenue of around $9 billion would dwarf what would be the second-largest toymaker, Lego, which had around $5.5 billion in revenue in 2018.

It would also eliminate the ability of third-party players to use the competition between them to their benefit. Disney (NYSE:DIS), for example, was able to take its Frozen and princess lines of dolls from Mattel and award it to Hasbro. The fact that partners and potential partners can play the two companies against one another keeps both on their

Article source: https://www.fool.com/investing/2019/06/15/mattel-rightly-rejects-mga-entertainments-vague-bu.aspx

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