Mattel to buy Canadian toy maker Mega Brands in friendly $460M deal
Ross Marowits, The Canadian Press
Published Friday, February 28, 2014 6:55AM EST
Last Updated Friday, February 28, 2014 1:31PM EST
MONTREAL -- Mattel is filling a large hole in its portfolio of toys with a US$460-million friendly takeover of Canadian toymaker Mega Brands, the world's second-largest maker of construction sets after Lego.
The deal includes about US$47 million of debt that the American industry giant will assume or repay.
The transaction announced Friday will mark the sale of Canada's largest publicly traded toy company, which was founded in 1967 and grew to become the leading maker of pre-school construction toys.
Marc Bertrand, president and CEO of Mega Brands as well as a significant shareholder, said Mattel will help his company grow to the next level.
"There is no better partner for the future," he said during a conference call.
He said Mega Brands will have a bright future with Mattel, which has a history of allowing its brands to maintain existing operations. Fisher Price, American Girl and Hit Entertainment remained in their base communities long after being acquired.
Mattel -- maker of Barbie dolls, Hot Wheels cars and numerous other toys -- said Mega Brands will help it expand in two of the fastest-growing product segments: construction sets and arts and crafts.
Bryan Stockton, Mattel's chairman and CEO, told analysts Friday that Mattel (Nasdaq:MAT) plans to keep the Mega Brands head office in Montreal and to invest in its manufacturing operations, which he said are integral to the business.
"It's Montreal headquarters, which we plan to maintain, has proven category expertise with strong skills in a variety of functions, including marketing, design, development and engineering," he said.
The company expects to make the plant more efficient and profitable but "it's a nice facility, it's one of the key reasons that we're buying this great company," Stockton said.
He said Mattel will be able to contribute a more extensive distribution reach outside of North America, where Mega Brands has most of its sales, and plans to spend more on marketing than the smaller company has done in the past.
Bertrand and his brother Vic, who is chief innovation officer, will remain as advisers for at least a year.
Marc Bertrand said he's confident that Mattel's scale and global platform spanning 150 markets -- combined with Mega Brands' expertise in the construction and arts and crafts categories -- will create tremendous growth opportunities.
Mattel is offering C$17.75 cash per share for Mega Brands and has the support of shareholders with 39 per cent of Mega Brands stock, including the founding Bertrand family and Fairfax, which invested in the company as it struggled to survive disastrous recalls of its magnetic toy.
Approval of two-thirds of Mega Brands (TSE:MB) shareholders is required at a vote, expected to be held in about two months. The deal is expected to close in the second quarter and is subject to a US$12-million break fee.
Bertrand said the deal flowed from its licensing arrangement with Mattel that began about a year ago. He said weakness in fourth-quarter results, which will be announced next week, didn't influence the timing of the transaction. Mega Brands has about US$400 million in annual sales.
The cash portion of the offer is about 35 per cent above the recent market price for Mega Brand shares, which closed Thursday at $13.07 on the Toronto Stock Exchange. They surged to $17.71 in Friday afternoon trading while Mattel shares gained 31 cents at $37.46 on the Nasdaq market
Stockton said the deal allows Mattel is fill its one weakness by immediately becoming a large player in the growing US$4-billion a year construction category, which is dominated by Mega Brands and Lego. Mega has about 10 per cent of the market.
He said the deal will harness Mega Brands' manufacturing expertise with Mattel's proven distribution and marketing expertise.
Neil Linsdell of Industrial Alliance said the deal with Mattel was long expected given the close ties between the two companies and potential to develop construction toys for other Mattel lines.