Mattel to buy Mega Brands to build up against Lego

Fri Feb 28, 2014 11:09am EST
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By Maria Ajit Thomas

(Reuters) - Mattel Inc (MAT.O: Quote), the world's No. 1 toymaker, offered to buy Canada's Mega Brands Inc MB.TO for about $460 million to better compete with Denmark's Lego, the leader in the fast-growing market for building blocks.

For the past three years, the demand for construction toys, especially Lego's colorful building blocks, has been growing at the expense of action figures and preschool toys - the forte of Mattel and its main rival Hasbro Inc (HAS.O: Quote).

That pushed Lego's sales up 10 percent in a sluggish global toy market in 2013, helping it overtake Hasbro to become the No. 2 toy company by sales globally. Mattel's sales rose 1 percent and Hasbro's were flat in 2013.

Mega Brands, founded in 1967, sells building blocks that directly compete with Lego, and will help Mattel garner a larger share of a market that Chief Executive Bryan Stockton said had some of the highest margins in the toy industry.

"Mattel currently has less than a 1 percent share in the category. This is the single largest toy category where Mattel does not play," Mattel's Stockton said on a call with analysts.

Mega Brands, which sells construction blocks under the MEGA Bloks brand, estimated it has a 10 percent market share globally.

Shares of Mattel, known for its Barbie and Hot Wheels brands, were slightly higher at $37.13 on the Nasdaq.

The company offered C$17.75 per share of Mega Brands, representing a premium of 36 percent to the stock's close on Thursday.   Continued...

Displayed Mega Bloc toys at Mega Brands Inc. annual general meeting in Montreal May 12, 2011. REUTERS/Christinne Muschi