MGA Entertainment Inc.’s Chief Executive Isaac Larian slammed Mattel Inc. in a statement that officially calls off the second merger talks between the two toy companies.
MGA Entertainment’s portfolio includes Little Tikes and LOL Surprise.
“With close to $4 billion in debt at an average interest rate of 6.58% (as of March 2019), a staggering 42% in operating expenses, and a major legal liability for having sold a faulty Fisher Price Rock ‘n Play Sleeper for years even as multiple baby fatalities occurred, there is simply too much mess to clean up at Mattel,” the statement said.
In an April 10Q filing, Mattel reported total noncurrent liabilities of about $3.6 billion, which includes long-term debt of $2.9 billion.
Also in April, Mattel recalled the Fisher Price Rock ‘n Play Sleeper, which had been tied to infant deaths. Analysts estimated that the recall could cost Mattel $40 million to $60 million. Fisher Price stood by the safety of the product at that time.
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“It is my opinion that Mattel cannot be salvaged at this point and most certainly not under the current, hostile board and management,” Larian said. “As such, after considering the disastrous financial details of Mattel, and the direction its board and management are pursuing, I think, at this time, it is in the best interest of MGAE not to continue forward with a Mattel offer.”
Mattel stock closed Wednesday down 5.4%.
Last week, there were reports that Mattel rejected a merger offer, which sent shares higher.
For the most recent quarter, Mattel reported a year-over-year 3% sales decline to $689.2 million and a loss of 53 cents per share, after a loss of 90 cents per share in 2018. Operating loss was $131.0 million after an operating loss of $276.6 million the previous year.
“The reality is we have made strong progress on our ongoing strategic transformation plan including significant improvements in our profitability and operating income, while laying the groundwork to drive long-term shareholder value,” Mattel told MarketWatch in a statement.
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Mattel’s struggles go back further than 2016, the year it lost the license for the Disney Princess dolls to rival Hasbro Inc. , which saw its fortunes change dramatically with the line in its arsenal. The “princesses” includes Belle from “Beauty and the Beast” and Snow White.
Other key brands in Mattel’s portfolio, including the iconic Barbie doll, fell out of favor with children and parents as tastes shifted to less gendered, more digital toys.
Barbie sales have since picked up and Mattel is taking steps to deepen its portfolio of broader entertainment offerings, extending its licensing agreement with Warner Bros., expanding its licensing agreement with Disney Pixar and signing on for a Barbie film that will star Oscar-nominee Margot Robbie, who will also be a co-producer.
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“While Mattel beat expectations in Q1, Q1 is Mattel’s smallest quarter and we prefer to stay on the sideline until we see sustainable momentum and transformation into a digital play company,” wrote Camilla Yanushevsky of CFRA Research in a June 4 note. “We attribute the sales beat to the 60th anniversary of Barbie, which, in our view, revived temporary nostalgia for the brand; EPS beat reflects rationalization and deep cost cuts.”
CFRA rates Mattel shares hold, which Yanushevsky said indicates concerns over the company’s financial position, reputation risk from the Rock ‘n Play Sleeper recall, and execution risk on the new film deals. CFRA cut its 12-month target to $12 from $15.
Mattel shares have sunk 34.5% over the past year, but have gained nearly 14.2% for the year to date. The S&P 500 index is up 16.7% for 2019 so far.