These toymakers aren’t playing around. Hasbro, Inc. (Nasdaq: HAS) is interested in acquiring its longtime rival, Mattel, Inc. ( MAT), according to a report in the Wall Street Journal, citing unnamed sources.
Shares of both companies surged Monday on the news, with MAT stock jumping 20 percent and HAS stock adding as much as 8 percent in morning trading. The fact that both the potential acquirer and the firm-to-be-acquired saw their stocks rise is atypical in merger transactions and tells investors a little bit about how the market views this deal.
With traditional bricks-and-mortar toymakers under assault from the rising popularity of e-commerce and the usual suspect Amazon.com, Inc. ( AMZN), Toys R Us was forced to declare bankruptcy earlier this year.
[See: 7 Stocks That Soar in a Recession.]
It’s no surprise that Mattel stock is rising on Monday, as the toymaker has seen annual sales decline like clockwork since 2013. Revenue of $6.48 billion in 2013 has waned to Wall Street expectations of just $5.09 billion in 2017. And a company who as recently as 2013 earned $2.61 per share is expected to earn just 7 cents a share for the full-year 2017. In October, MAT stock suspended its dividend to free up cash.
The fortunes of HAS have been wildly different; EPS of $2.17 on revenue of $4.08 billion is expected to clock in at $4.83 per share and $5.35 billion, respectively, in 2017.
In short, the decision to merge Hasbro, known for its brands such as Nerf, Transformers, and My Little Pony, and Mattel, known for Barbie, American Girl dolls and Fisher-Price, makes sense for an industry where consolidation makes a whole lot of sense.
A merger of Hasbro and Mattel would make a stronger united company, and give it more power with which to ward off the likes of Amazon, which is why the market is making the (on the surface, at least) unusual decision to reward HAS stock Monday.
Caveat emptor. With all that said, it’s important for investors to remember, in situations like these, that speculating on shares of Hasbro or Mattel at this time is just that: speculation. A report based on unnamed sources that Hasbro has offered to buy Mattel — at an unnamed price, no less — isn’t enough to act on.
If, however, you own MAT stock and have been looking for a way out — shares are down 43 percent in the last year, even after Monday’s 20 percent climb — this might be a good exit point. Sure, you could be leaving some money on the table, but the deal could also fall apart, or disappoint the market.
And then there’s always the antitrust concerns. It would seem silly to block a merger in an industry seemingly begging for one, but then again the Federal Trade Commission has done sillier things, like blocking the merger of Office Depot ( ODP) and Staples despite the disintermediation of the office supplies industry.
Horizontal mergers, like Office Depot-Staples and Walgreens-Rite Aid, sometimes get more undeserved scrutiny from regulators than vertical ones, like the current Time Warner Inc ( TWX) – AT&T Inc. ( T) deal, which could actually survive if Time Warner sells off CNN first.
[Read: Will Partnering With Amazon.com Save Retailers?]
Regardless of whether or not a deal is struck, shoppers should know this: There’s no way this merger could close by the end of the year, so your holiday shopping won’t be affected.
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Hasbro, Inc. (HAS) Offers to Buy Mattel, Inc. (MAT); What it Means for Christmas originally appeared on usnews.com
