There's Rationale For A Hasbro And Mattel Deal

Struggling toymaker Mattel, Inc. (NASDAQ: MAT) is in talks to sell itself to larger rival Hasbro, Inc. (NASDAQ: HAS), The Wall Street Journal reported on Friday.

The Analyst

UBS analyst Arpine Kocharyan maintains a Neutral rating and $104 price target on Hasbro's stock and a Buy rating and $18 price target on Mattel's stock.

The Thesis

The combination of Hasbro and Mattel remains a "sticky question" but consolidation within the toy space may prove to be "relevant," Kocharyan said in a report. Mattel, Hasbro and LEGO Group combine for more than 50 percent of the entire U.S. toy market with the remaining six to seven major players each controlling less than 5 percent of the market. As such, a tie-up could impact shelf-space allocation among the much smaller rivals at major retailers and could impact their pricing power.

Many of the top tier licenses (such as Marvel and DC Comic) that are held by Mattel and Hasbro are likely to include a change of control provision, the analyst said.

Bottom line, Kocharyan doesn't have a view on the possibility of a deal happening Hasbro may be interested in a deal as growth will be "incrementally more difficult to come by" after a "stellar" four years.

Price Action

Shares of Mattel were trading higher by 21 percent early Monday morning, while shares of Hasbro were higher by more than 3 percent.

Related Links:

Dividend Suspension A Hard Pill To Swallow For Mattel Investors

Considering Implications For Hasbro And Mattel From The Toys 'R' Us Bankruptcy