VTech has entered a merger agreement in which it will acquire rival LeapFrog for $72m.
VTech of Hong Kong acquired one of its biggest rivals, LeapFrog for approximately $72 million. That is roughly $1 per share, which is a 78.5 percent premium of the LeapFrog’s closing price. Still, 2 years ago LeapFrog traded at $8 dollars a share when it was considered a major leader in the industry
Founded more than 20 year ago in Emeryville, California, LeapFrog was a leader in children’s education toys, selling a line of tablets for kids and other education toys. LeapFrog is most known for its LeapPad tablet. It’s a tablet with kid appropriate software. If you have kids, you probably have a LeapFrog tablet lying around. At one time, it was one of the top Christmas gifts for kids.
Recently, the company has struggled to complete with not only toy companies but technology companies like Apple. The tablet market is beginning to slow down and LeapFrog’s latest LeapTV learning video game platform failed to attract customers.
Things started to look bad for LeapFrog when it released its latest company earnings report. The company reported annual sales of $339.1 million in 2015, which is the lowest ever since the company became public in 2002.
Even last November, LeapFrog was conducting a strategic review of the company’s future goals. LeapFrog was just unable to attract customers to its business model and soon found itself surpassed by VTech and even Apple. LeapFrog used to have an entire line of educational toys for kids but gambled that steady business away with the rise of tablets.
Investing as much as $30 million a year on its tablet technology, LeapFrog bet on tablets for kids. It was a great idea when tablets cost $600, but not so much today. Tablets for adults from Apple and Android makers have started coming down in price. That means the parents can get a full fledged tablet with tons of apps for roughly the same price of a LeapPad tablet.
Now parents just pass their old tablets down to their kids and slap a protective case on it. It’s called the pass down effect. It might be a couple of generations old but to kids it doesn’t matter. This way you don’t have to worry about it if your child drops it.
Still, toy industry analysts say that the LeapFrog brand still resonates with parents.
LeapFrog’s Bill Chiasson said the acquisition will “be instrumental to helping the LeapFrog brand achieve the mission of helping each child achieve their potential. Importantly, too, this transaction also rewards our shareholders with a significant premium from recent trading levels.”
Linking the two companies together makes a whole lot of sense. The acquisition brings together 2 of the biggest toy companies that create gadgets, learning toys, and tablets for kids. Both companies focus primarily on the preschool and elementary school crowd.
For VTech the acquisition helps strengthen VTech’s position as a technology leader in the toy industry. VTech sells kid versions of tablets, watches, cameras, and other gadgets. Both companies made a strategic decision that the best way to move forward is to join together. The combined company now has to decide where it fits in today’s market.
Allan Wong, the CEO of VTech, said “The acquisition will allow us to offer the broadest portfolio of products that enhance the education and development of children.”
The combined company will be known as LeapFrog. The combined company can really dominate their market and compete with Mattel, Hasbro, and Lego. The announcement follows after the speculation of another major merger in the toy industry between Hasbro and Mattel as reported by Bloomberg News.