Newell Rubbermaid Inc. is shopping Little Tikes Co. for sale, and another toy maker is taking a look - Mega Bloks Inc. of Montreal - industry sources said.
Newell Rubbermaid executives have told Little Tikes managers and other white-collar employees that the Hudson, Ohio-based toy company is on the market, according to sources.
``They know what's going on. It's not a secret in the building,'' one source said. He said employees were told within a few weeks after the departure of former Little Tikes President Clancy Lavins, who left the company March 18.
Two industry sources, who spoke on the condition they not be identified, said Mega Bloks people have visited Hudson and toured Tikes' headquarters factory.
Mega Bloks, which makes construction toys and competes with Lego Co., went public three years ago. Mega Bloks has low debt, and company officials have said they want to make acquisitions.
Mega Bloks and Little Tikes both declined to comment. Eric Phaneuf, Mega Bloks' director of finance and investor relations, said: ``For us it's still a rumor at this point and we can't comment on rumors.''
``We do not comment on any rumors or speculations,'' said Laurie Yingling, spokeswoman for Little Tikes.
Little Tikes employs about 900 at the sprawling Hudson operation - its only North American production site, following a series of plant closings and divestitures over the past few years. According to Plastics News' and industry estimates, Tikes did $200 million in rotational molding-related sales in 2003. Its products include its well-known rotomolded Cozy Coupes, picnic tables and outdoor play equipment.
Tikes also sells smaller injection molded products like flashlights and little cars and trucks - including toys imported from China.
Although Newell Rubbermaid does not break out financial results for Tikes, it's clear it would be a big fish to swallow for Mega Bloks, which reported 2004 sales of $234.6 million. The Canadian company reports in U.S. dollars.
But Mega Bloks appears to be in a good position to make a major acquisition. Conservatively run by the founding Bertrand family, the firm held its initial public offering on the Toronto Stock Exchange in 2002. Mega Bloks said 2004 marked the 19th consecutive year of sales growth. Sales have doubled since 2000. The firm's debt has steadily declined, down to $24.6 million in 2004, according to its annual report.
Mega Bloks officials have said they want to make strategic acquisitions, targeting the preschool, arts and crafts and construction toy segments.
Toronto analyst Jamie Spreng said the ideal acquisition for Mega Bloks would be an ``evergreen'' brand - with many products all under one brand name - that generates annual sales of $70 million to $100 million. ``It is possible, however, to see acquisitions with revenue as large as $200 million,'' he wrote in a report last fall.
A purchase could be financed through cash flow and debt, ``given Mega Bloks' significant free cash flow and under-leveraged balance sheet,'' said the report by Spreng, of Fraser Mackenzie Ltd.
Spreng said in a telephone interview that Little Tikes would have an attractive brand name - an important part of any transaction. But beyond a well-known name, an acquisition candidate needs to be committed to developing new toys to keep the brand fresh, he said.
Another toy analyst said the summer-based selling season for many Little Tikes products would counterbalance Mega Bloks' strength for the Christmas holiday season.
This is not the first time reports have circulated about ownership changes at Little Tikes. Last summer, Newell Rubbermaid sold Little Tikes Commercial Play Systems in Farmington, Mo., to PlayPower Inc., which owns another playground equipment maker, Miracle Recreation Equipment Co.
At the time, Newell Rubbermaid officials said that deal would not affect Hudson-based Little Tikes, which makes consumer toys.
In 1999, Plastics News reported that Little Tikes and rival Step2 Co. in Streetsboro, Ohio, had explored merging into a single toy company. Nothing happened.
When contacted for this story, Tom Murdough, Step2's chief executive officer, said his company is not interested in buying Little Tikes.
Nothing could end up happening this time, too. But provocative comments from executives of Sandy Springs, Ga.-based Newell Rubbermaid have heightened the speculation. CEO Joseph Galli has laid out a strategy to exit what he called ``resin-intensive'' commodity products. Galli wants to focus on higher-margin products.
During 2004, the consumer products giant completed a three-year restructuring plan, closing 84 facilities worldwide and divesting $850 million in sales of ``low-margin, nonstrategic businesses,'' Galli said in a letter to shareholders announcing 2004 results.
In an April 28 conference call discussing results for the first quarter of 2005, Galli several times talked about reducing the ``fixed capital'' tied up in manufacturing. He told analysts that Newell Rubbermaid has an ``ongoing effort to decapitalize or to reduce our overall manufacturing overhead throughout the company.''
Little Tikes was only mentioned once in the conference call - during a discussion about operations with too low of a capacity utilization rate. Galli said Rubbermaid Home Products, the window fashions business and Little Tikes fall under that category.
Meanwhile, Newell Rubbermaid announced April 25 that David Reed is the new Tikes president.
Reed has been with Newell since 1996, most recently as group vice president of operations for the Home & Family Products Group, which includes Calphalon, Little Tikes, Graco Children's Products Inc. of Macedonia, Ohio, and Goody hair accessories. His previous Newell positions included vice president of operations at Calphalon and president of Anchor Hocking Glass, according to an April 25 Little Tikes news release.
Newell Rubbermaid also announced that Jeff Hohler will lead Rubbermaid Foodservice Products, replacing David Walsh, who is joining diversified manufacturer Chiaphua Industries Ltd. in Hong Kong.
Hohler most recently was president of the Levolor/Kirsch window fashions unit. Before joining Newell Rubbermaid in 2001, he was vice president of marketing at Stanley Tools, and he held various marketing and sales positions throughout his 10-year career at Black & Decker. Rubbermaid Foodservice Products is based in Huntersville, N.C.