Nuptial Bliss for Barbie and G.I. Joe Snags on Reluctance of the Groom

Hasbro cites antitrust concerns, but Mattel sees that as an excuse

THE potential wedding between Barbie and G.I. Joe is on hold. But some analysts and industry executives say it's only a matter of time before Mattel Inc., maker of the blond bombshell, hitches up with Hasbro Inc., maker of the male combat figure.

"Ultimately, the deal will be consummated," despite current antitrust concerns, says Laurie Lively Smith a toy analyst at Los Angeles-based Seidler Companies. "I don't see any cons."

For the No. 1 toy manufacturer, Mattel, the benefits of such a marriage would be additional earnings growth, Ms. Smith says. No. 2 player Hasbro's shareholders would get a huge premium - 73 percent under Mattel's current offer - in their stock over prior levels. And in an industry where retailers have had the upper hand, she adds, even smaller toy manufacturers may be better accommodated, because retailers will want to nurture as many suppliers and vendors as possible.

Richard Grey, chairman of Tyco Toys Inc., the next-largest toy manufacturer in the United States, speculates that the government will probably raise antitrust concerns about the merger in certain categories. But, he adds, "Probably there would be ways to accommodate whatever objections the government already had if Hasbro and Mattel both wanted this merger to go through."

Hasbro, based in Pawtucket, R.I., rejected last week a $5.2 billion bid from rival Mattel, saying the combination wouldn't survive antitrust hurdles.

The Federal Trade Commission (FTC) already has an investigation under way of whether Toys "R" Us, the nation's largest toy retailer, has used its marketing might to discourage manufacturers from selling popular toys through discount stores.

Mattel has offered to pay Hasbro a $100 million breakup fee should the deal fall apart on anti-trust grounds - half the projected net income for Hasbro for 1996.

In a letter sent Friday to Alan Hassenfeld, Hasbro's chairman, John Amerman, Mattel's chairman, wrote: "Alan, I have to think that if you truly believed that the transaction could not be consummated, you would not have directed your advisers to negotiate all the other aspects of the transaction with us. I urge you, for the sake of your shareholders, and so that we can create the great company we both acknowledge the combination of our two entities would produce, that you promptly sit down with us and negotiate the execution of a definitive merger agreement."

Hasbro officials reacted coolly to the letter.

If completed, the deal would create an entity with estimated 1996 worldwide sales of $7.3 billion. (That's seven times as large as third-place Tyco in revenues.) The combined operations would hold at least 30 percent of the market share in the $13 billion a year US toy industry. Tyco has the next-highest market share at just under 5 percent.

No doubt, antitrust lawyers say, the FTC would examine this merger carefully. Still, they add, the issue is not that the top two companies would be merging. But rather the outcome of an anti-trust challenge would depend largely on how the toy market is defined.

"The question is not whether or not its one and two [merging], but whether or not one and two would so dominate the market that they would be able to exclude competition and raise prices," says Barry Pupkin, an antitrust lawyer at Squire, Sanders & Dempsey in Washington.

Mattel, headquartered in El Segundo, Calif., is a powerhouse in girl's dolls and infant items. Barbie accounts for more than one-third of its annual sales. Hasbro's strengths are male action figures, including G.I. Joe, Batman, and Star Wars characters, and virtually every popular board game, from Monopoly to Trivial Pursuit.

The merged company would hold overwhelming market share in several key toy-industry subcategories: dolls, male-action toys, preschool/infant lines, and games and puzzles.

For example, Mattel's Fisher-Price line has 30 percent of the market for infant and preschool toys and Hasbro's Playskool has 15 percent. Together they would hold a 45 percent share - five times that of its next-largest competitor.

But analysts say Mattel could sell Hasbro's Playskool business, a move some competitors would see as a positive.

"A company like Tyco might be able to acquire it [Playskool] on attractive terms in order to help the merger go through," Mr. Grey of Tyco speculates.

At the same time, hit toys often emerge from tiny domestic and foreign producers, making it harder to argue that any one company can monopolize the market.

"The toy business has proven repeatedly that 'gotta have' toys like Power Rangers, Cabbage Patch Dolls, and Ninja Turtles can come out of nowhere and become market phenomenons overnight," says Jill Krutick, a securities analyst at Smith Barney in New York.

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