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The time could be ideal for a combination of toy makers Hasbro and Mattel.
Hasbro tends to make things like Monopoly, My Small Pony, and Nerf when Mattel tends to make stuff like Barbie and Hot Wheels.
Which is according to UBS analysts led by Arpine Kocharyan, who mentioned they had “regularly been getting issues on the strategic rationale of a possible MAT+HAS combination.”
Bloomberg described very last calendar year that the two had held merger talks, but the conversations didn’t go wherever.
But there’s a couple of reasons to believe that a combination now would make perception, according to UBS.
Initial, there could be a broader consolidation in the toy sector anyway. UBS mentioned:
We have been of the perspective that ’17-’18 could see pickup in consolidation for what stays a fragmented toy sector. Lower limitations to entry & hit-pushed nature of the field have been most important drivers at the rear of fragmentation. Prime three gamers – Mattel, Hasbro & LEGO Group, make up <50% of U.S. market, with rest of 6-7 players at share of <5% each. Given 1) increasing dependence on entertainment-backed content which has been raising barriers to entry, and 2) importance of scale to move large inventory in a timely manner, we believe consolidation in the industry may become relevant.
Second, Mattel has been having difficulties currently as small children are starting to be less interested in Barbie/AmericanGirl dolls and additional interested in electronics and brands like Star Wars. The firm’s stock has struggled just after a tough getaway time, and investors are pricing in a dividend lower. Mattel is at this time buying and selling at 15x 2018 estimated earnings per share, when Hasbro is buying and selling at 19-20x.
Third, the UBS products task that if Hasbro pays a 30% high quality for Mattel stock, a acquire out price of $33 a share, Mattel would save $80 million in synergies the initial calendar year, $240 million the second, and $400 million by the 3rd. The result would be a 33% boost in Hasbro’s EPS by 2019.