Mattel to Acquire Mega Brands
Mattel, Inc. (MAT) has entered into an agreement to acquire Mega Brands Inc., a leading Canadian toy maker for $460.0 million, including all the outstanding common shares and warrants of Mega Brands.
Per the agreement, Mega Brands shareholders will receive C$17.75 per share in cash. This represents a premium of 32.0% to the 30-day volume-weighted average price of Mega Brands’ common shares on the TSX exchange as of Feb 26, 2014.
The acquisition would help Mattel to expand in two of the fastest-growing toy categories, construction building sets and arts & crafts categories. Per media reports, this acquisition will also help Mattel to hold its own ground against leading toy makers like Lego and Hasbro Inc. (HAS). Moreover, it will allow Mattel to extend its reach into new and growing categories while accelerating global growth.
Mattel intends to finance the acquisition with a combination of debt and cash in hand. In Feb 2012, the company acquired HIT Entertainment, one of the largest independent owners of preschool intellectual property for $680 million in cash. The company has been on acquisition spree but it seems that it would be a bit risky for the company to make such acquisitions with respect to its liquidity position. As of Dec 31, 2013, cash and equivalents were $1.0 billion, down from $1.3 billion as of Dec 31, 2012. Meanwhile, long-term debt was $1.6 billion, up from $1.1 billion as of Dec 31, 2012. Moreover, as per reports, the company would have to raise more debt in order to finance this acquisition. Net cash flow from operating activities plunged 45.2% year over year to $698.0 million in 2013.
On Jan 31, 2014, this Zacks Rank #5 (Strong Sell) company posted dismal results with earnings and revenue missing the Zacks Consensus Estimate and declining year over year.
Some better-ranked stocks in the toys and games industry include JAKKS Pacific, Inc. (JAKK) and Take-Two Interactive Software Inc. (TTWO). Both these stocks carry a Zacks Rank #2 (Buy).
Read the Full Research Report on JAKK
Read the Full Research Report on HAS
Read the Full Research Report on MAT
Read the Full Research Report on TTWO
Zacks Investment Research