Struggling Hong Kong toy maker Grand Toys International Ltd. is buying a piece of American pop culture - Wham-O Inc., the maker of the Hula Hoop, Frisbee and other plastic toys.
Grand said Feb. 14 it will buy Wham-O of Emeryville, Calif., from Hong Kong's Cornerstone Strategic Management Ltd. for US$35 million in cash and two of Grand's ``low-margin'' businesses that make party and novelty items.
The sale effectively transfers Wham-O between companies substantially owned by the same family, from privately held Cornerstone, which is owned by Raylin Hsieh, to Grand, which is 86 percent owned by her husband, Jeff Hsieh.
But Grand officials said Wham-O's intellectual property and brand make it a better fit in Grand.
``We believe the acquisition of Wham-O represents a transformational opportunity for Grand Toys and it will become the key asset around which we will build our business,'' said David Howell, Grand chief financial officer, in a news release.
Grand has lost money and shed business units in recent years, including a mold-making unit it closed.
The Wham-O acquisition will complement Grand's U.S. sales and distribution wing, International Playthings Inc., the company said. Grand said it wants to use Wham-O to build a company focused on outdoor and leisure products and specialty toys. Wham-O also owns well-known brands Slip 'N Slide and Morey Boogie boards.
Howell said Grand has been focused on finding a new direction since mid-2007, when the firm had a shake-up in its board of directors. Two board members stepped down, and the company added three new members with extensive toy and financial industry experience, including Howell and Frank Au, managing director and co-founder of Asian investment bank Latitude Capital Group. Au is a former executive at Lehman Bros. Asia.
Wham-O had unaudited sales of about US$50 million in fiscal 2007, and is currently profitable, Howell said in a Feb. 19 telephone interview. But he said the iconic toy maker has had a ``checkered history,'' with ownership changes and at one point setting up a Mexican factory that proved costly.
When Cornerstone bought Wham-O in 2006, it said Cornerstone's injection molding and other operations in China would help it control Wham-O's costs.
But Cornerstone has gotten rid of much of those operations and subcontracts out most of Wham-O's production. Grand will continue subcontracting, he said.
Grand said in filings with the Securities and Exchange Commission that it lost US$22.4 million on sales of US$128.7 million in 2006. In the first half of 2007, it said sales dropped about 17 percent to US$47 million, as its printing unit lost business and inflation in China increased costs.
In the deal, Grand will give Cornerstone Hua Yang Holdings Co. Ltd. and Kord Holdings Inc.
``The divestiture of the low-margin, noncore Hua Yang and Kord manufacturing businesses frees up significant capital for the company and allows us to reduce substantially our bank debt, creating a much healthier balance sheet,'' Howell said.
Nasdaq said Grand risks being delisted by May 1 because its share prices dropped below minimum thresholds.