Isaac Larian Offers Merger Between MGA and Mattel

Last Updated on January 3, 2020 by Danielle

Mattel MGA Merger

Isaac Larian is seeking a merger between MGA and Mattel, but the house of Barbie isn’t interested in such a deal.

Billionaire MGA Entertainment executive Isaac Larian is making headlines again. This time he proposed a merger between MGA Entertainment and Mattel.

Larian has bitterly competed with Mattel for over a decade, and now in a rather surprising twist he wants to run the struggling company. But Mattel declined his unsolicited offer. Christopher Sinclair, retiring executive chairman and former Mattel CEO, wrote to Larian that after careful consideration of his proposal, Mattel would be declining the offer. Interestingly, they told him to not bother again.

Sinclair wrote: “The Mattel Board unanimously concluded that this proposal is not in the best interests of Mattel and its shareholders. Accordingly, the Board asked that I advise you that Mattel is not interested in further discussing this matter with you.”

With Larian’s company riding high, he made the offer but reportedly didn’t put a value on Mattel. MGA’s Bratz dolls have continued to deliver steady income and have even dented Barbie’s popularity and profitability over the years. It also helped spawn a bitter intellectual property fight between Mattel and MGA.

MGA also is the maker of LOL Surprise Dolls which were the best-selling toy last year and has been the top toy for 2018 thus far.

Larian boasted, “MGA made more profits in four quarters than Mattel has made in four years.”

Certainly, Mattel is trying to turn around its fortunes after a rather lengthy slump. According to analysts, Mattel has lagged behind competitors in digital media and is playing catch up with competing brands that have launched apps, movies, and even TV shows.

In 2017, Mattel lost $1.1 billion with sales plummeting 11 percent to $4.9 billion. U.S. tax changes contributed to the loss.

This April, Margo Georgiadis suddenly departed as CEO of Mattel after just 14 months in the role. Her focus was on enhancing Barbie, American Girl and other core brands while streamlining operations and cutting costs. Then Mattel announced Ynon Kreiz, a former chairman and CEO of Maker Studios, a digital media company, as the successor.

Evidently, Larian has had plans to merge the two companies for some time now. Back in April 2015, Larian and Sinclair met to discuss a merger proposal and resolve the companies’ litigation. Mattel had declined the offer at that time also.

The battle between the two companies began in 2004, when Mattel filed suit against MGA alleging that it stole the Bratz idea. Eventually, MGA won that battle and brought litigation against Mattel, such as the 2014 trade secrets claim.

In a letter to Mattel, Larian made the case that Mattel’s shares and market cap have been halved, while MGA generated more money than Mattel in 2017 with no debt whatsoever. Larian also highlighted the success of the LOL Surprise Dolls. Larian also claimed that MGA would more than double its profits and sales in 2018 and anticipates growing by more than half again in 2019.

Larian bluntly stated in the letter: “Yvon (Krietz) is a good guy. But he doesn’t know toys and will fail like Margo (Georgiadis) did.”

Larian said MGA would “put a value on MGA and its brands and its legal claims. Based on this, we will merge.”

Interesingly, after news broke of the proposed merger offer, Mattel’s shares dropped one percent with a market cap of $5.2 billion.

Susan Anderson, a Senior Market Analyst at B. Riley FBR, said she was puzzled by the proposed merger offer. She pointed out that Larian would inherit “a pretty big mess,” as Mattel has various supply chain issues.

And Gerrick Johnson, a toy industry analyst, noted Mattel became “arrogant” over the years. But he now believes Mattel has a strong strategy and could develop a new product and attain success. Johnson said, “It’s not like the auto industry, where it’s going to take you five years to develop something new. They can develop new products in six months. They can change their fortunes pretty quickly. I see no reason they can’t get it done.” He added, “They have internally recognized intellectual property that’s multigenerational. Everyone knows Barbie. Everyone knows Hot Wheels. Everyone knows Fisher-Price. They’ve got world-class brands.”

But Mattel isn’t in isolation – as the entire industry is facing challenging times with the bankruptcy and closure of Toys R Us. The challenge intensifies considering Amazon and Walmart are eroding margins and contributed to the demise of Toys R Us.

Earlier in March, Larian spearheaded a $1 billion GoFundMe #SaveToysRUs campaign, which failed to meet its ambitious goal. Larian later admitted it was a publicity stunt and never expected to hit the goal.

Then in April, Larian submitted a $675 million bid for 274 U.S. Toys R Us stores plus $215 million for 82 Canadian stores. Ultimately, his bid was rejected for being too low and for the Canadian arm, he was beat out by billionaire Prem Watsa.

Larian is still seeking to acquire some of Toys R Us’s U.S. assets but hasn’t spoken publicly about the progress on that effort.

Richard Gottlieb, toy industry consultant at Global Toy Group, also was perplexed by the proposed merger between MGA and Mattel – noting that Larian has been no stranger to making headlines this year.

Gottlieb said, “I have a great deal of respect for Isaac and consider him to be a true genius when it comes to understanding toys and the desires of those who play with them. I can’t speak to his motive, but I find it difficult to believe that he was serious in his approach as it is extremely doubtful that Mattel would ever entertain an offer by Isaac due to their mutually and highly contentious past and present.”

Larian told The Times that the proposed merger with Mattel was not another publicity stunt – calling those claims “nonsense”. Larian plans to meet directly with Mattel’s shareholders. Larian said, “I hope the merger will save this American icon before, like Toys R Us, it is too late.”

Source: LA Times

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