Report: Hasbro, Mattel consider merger

News of Hasbro Inc.'s strong financial results in 2015 is being overshadowed by speculation the toymaker has been discussing a merger with the top dog, Mattel Inc.

Hasbro's full year earnings statement was released four days after Bloomberg reported that sources close to the matter revealed the companies have held merger talks. A merger would create a toy behemoth with about $10 billion in annual sales, more than double that of its closest rival, Lego A/S, which logged approximate sales of about Danish Krone 28.3 billion ($4.2 billion) last year, based on its first-half performance.

A merger of the two companies could eventually lead to a giant that would rival Walt Disney Co. in the toy/play sector. Disney is reportedly the largest licensor in the world, recording sales of about $4.5 billion for licenses for its stable of brands like Nerf and My Little Pony.

But a merger also could be the beginning of a whole new type of toy company as Hasbro weans itself from the labors of toy manufacturing. Hasbro sold two giant toy and game factories to Belgium's Cartamundi Group last summer and it is looking to capitalize on its brands in other ways.

In a Feb. 8 financial conference call with analysts, Hasbro officials touted a “brand building blueprint” strategy that promotes the goodwill of brands rather than actual toys. Hasbro has stated its mission is to create the world's best play experiences. Storytelling and branding can engage children without the historical reliance on making and selling physical toys.

“Telling stories is less seasonal,” Hasbro CFO Deborah Thomas told analysts in the recent conference call.

“We are open to ideas that enhance our brand blueprint strategy,” added Hasbro President and CEO Brian Goldner.

In July, Hasbro said it was selling its East Longmeadow, Mass., and Waterford, Ireland, operations to Cartamundi, which will continue to make Hasbro's board games at the sites. Hasbro's move to de-emphasize manufacturing gives Cartamundi a 1.2-million-square-foot facility and 350 employees in Massachusetts and a 244,000-square-foot building in Ireland with 160 employees. Cartamundi is a prominent game marketer based in Turnhout, Belgium.

While Hasbro reinvents itself, another major trend — 3-D printing — is beginning to erode the historical toy production paradigm.

Hasbro, Mattel and other toy companies are closely watching how 3-D printing frees up consumers to make their own customized toys and how this will disrupt the conventional toy supply chain. And they are making moves to defend their position in the evolving toy universe.

Hasbro launched a website from which consumers can download the design specifications for a Hasbro toy and manipulate them to create a personal toy that is then printed for the consumer, bypassing the historical mass toy production strategy. Mattel has teamed up with Autodesk to create new apps for consumers who can use Mattel's toy lineup to choose and 3-D print toys.

The toy industry has not yet felt the ominous impact that brand focus and 3-D printing will eventually have on the old toy universe. In North America alone, consumers spend about $22 billion on playthings annually and new trends are only beginning to nibble at the toy industry's structure. The advent of video games 35 years ago rattled the foundations of the toy industry and now the major players are adapting to other compelling ways of delivering play content, such as apps, websites, movies, television shows and more.

A Hasbro-Mattel merger is not an entirely new possibility. Two years ago Mattel offered $5.2 billion for Hasbro, but Hasbro's board of directors and the specter of potential anti-trust issues pushed the deal off the table. Hasbro and Mattel might soon elaborate on their evolving toy strategies. Hasbro has slated a presentation at the upcoming Toy Fair in New York on Feb. 13-16. Mattel has announced a question and answer teleconference with analysts on Feb. 16.

Hasbro's sales for 2015 grew 13 percent but negative foreign exchange impacts trimmed growth to 4 percent over 2014. Mattel's full year sales fell 7 percent while profit fell 45 percent.