U.S. plastics processors don't expect a proposed Mattel Inc. buyout of Hasbro Inc. to reverse the drain of toy molding work leaving the country. Hasbro has been moving work from northeast U.S. molders and its own plants in the region to undisclosed locations and Mattel hasn't relied much on U.S. custom molders for years.
One custom molder said he ran several injection presses for Hasbro parts two years ago but ``basically wrote them off as an account'' for this year. The executive, who requested anonymity, said he has seen his work and that of Hasbro's Rhode Island operations go to Hasbro's Mexican plants ``for cheaper labor.'' A Mattel purchase likely would accelerate transfer of molding out of the country, he added.
The executive said one molder, Dukon Corp. of Berlin, Conn., did Hasbro molding before it went out of business in October. Former officials with Dukon, which also molded cosmetic cases, could not be reached for comment. The source did not know how much of Dukon's demise could be attributed to loss of Hasbro business.
A PFI Vacuum Forming Inc. official said a Mattel-Hasbro merger ``would cripple some molders.'' The new giant would have even more control over U.S. molders and could insist on such thin profit margins that some molders would fold.
David Grice, PFI's vice president of sales, said more molding for most toy companies is going to Mexico and the Far East and that the proposed merger could speed up the trend. Grice said he tries to limit his firm's exposure to toy companies to about 10 percent of sales.
Houston-based PFI has worked for Hasbro, but spreads its sales over many industries.
Mattel and Hasbro spokesmen would not speculate on how a merger would affect their manufacturing and sourcing strategies. Mattel Chairman and Chief Executive Officer John Amerman said in a Jan. 24 statement that the merger would result in ``greater economies of scale, more efficient manufacturing and stronger international marketing.''
Offshore sourcing became more attractive last year when toy tariffs from Asia into the United States fell to about zero from an average of 7 percent in 1994, according to a report from William Blair & Co. of Chicago. The Oct. 6 research report on Mattel and Hasbro estimated the tariff cut lowered import costs by more than $200 million - enough to offset raw material cost pressures. The research firm estimated imports from China represent more than 40 percent of U.S. toy volume.
Mattel has few industry cheerleaders for its $5.2 billion takeover plan among competitors and retailers. Many feel, like Hasbro, that the deal would violate antitrust laws. Some analysts, however, argue the deal is good for Hasbro shareholders. Mattel's offer represented a 73 percent premium over Hasbro's share price before Mattel made the proposal public on Jan. 24.
``It looks like a great idea to me,'' said John Bowling, president of Bowling Portfolio Management Inc. of Cincinnati. ``They seem to complement each other more than overlap.''
Bowling said the firms could avoid antitrust issues by selling pieces of the companies before or after a merger. Mattel's premium offer ``creates a lot of pressure to do something.''
Grice said a merger could cripple retailers like Toys R Us. Toy retailers themselves are being investigated by the Federal Trade Commission, an issue which further clouds Mattel's chances of success.
Hasbro closed its Wayne, N.J., plant about a year ago, roughly nine months after it shut its Salem, Mass., plant. It also reduced employment at Pawtucket, R.I., its head office, and Central Falls, R.I., last year and transferred production to other locations to lower costs. Hasbro spokesman Wayne Charness said other plants are in El Paso, Texas; Springfield, Mass.; Amsterdam, N.Y.; Montreal; Tijuana and Juarez, Mexico, and in Spain and Ireland. Hasbro also employs contract molders in the Far East.
Hasbro's Amsterdam plant has promoted its custom injection and blow molding services to the plastics industry in general for several months. Hasbro officials would not say how the Amsterdam operation fits Hasbro's captive production needs. In 1992, Hasbro had 240 injection presses and 30 blow molding machines, but officials would not comment on current levels.
Mattel spurred growth of the molding industry in Southern California before it moved most of its work offshore and to Asia, said John Knight, director of sales and marketing for Molding Corp. of America, a custom injection molder in Burbank, Calif.
``A lot of companies, including this one in 1966, got their start with Mattel in the 1960s,'' Knight said in a telephone interview.
Mattel's influence on California's molders began to wane in the 1980s when it began moving molding out of the country. MCA and other local molders lost almost all their Mattel contracts.
El Segundo, Calif.-based Mattel does most of its own U.S. injection, blow and rotational molding, usually sourcing outside only in overflow situations. Its U.S. plants are in Murray, Ky.; Medina, N.Y.; Ontario, Calif.; Augusta, Ga.; and Fort Wayne, Ind. It has three plants in Mexico and manufactures in Italy, the United Kingdom, China, Malaysia and Indonesia. The Murray and Medina plants were part of its Fisher-Price Inc. acquisition in 1993 and Fort Wayne was part of its Kransco Groups Co. purchase in 1994. Mattel closed three Fisher-Price plants in Mexico.
MCA has adapted by diversifying its customer base and geographic reach. It entered international markets and is upgrading machinery, buying robots and starting training programs to compete globally, according to Knight.
Knight said a giant toy merger would make it more difficult for small firms to enter the market.