Dive Brief:
- Southeastern Asset Management is pushing Mattel to explore strategic alternatives, including a sale to private equity, another toy company or a media business, according to a Thursday open letter by the investment management firm.
- Southeastern owns over 4% of Mattel’s common stock and has been an investor for over eight years.
- In response, Mattel said that the company has been in conversations with Southeastern and is focused on its growth strategy.
Dive Insight:
Mattel said it is committed to acting in the best interest of all its shareholders and regularly reviews the company’s performance. The toy company “will continue to consider the views expressed in Southeastern’s letter,” according to a statement.
Mattel has been focused on a strategy of leveraging its intellectual property and accelerating its entertainment business.
”This is really about our continuous evolution from a toy manufacturing company that we used to be to become an IP company — to making items to managing franchises,” CEO Ynon Kreiz said last fall at the Goldman Sachs Annual Global Retailing Conference.
The push by Southeastern comes a little over a week after Mattel reported its Q1 earnings, wherein Kreiz said the toy industry is healthy and the company is continuing to see demand. In the first quarter, Mattel’s net sales increased 4% year over year, and the company swung to a net income of $61 million, compared to a loss of over $40 million in the year-ago period.
Southeastern says that Kreiz’s compensation package incentivizes waiting for the company’s stock to reach over $30. “We see a value per share today approaching $30, but we do not want to wait longer for that to be realized,” the management company said in its letter.
Mattel declined to comment regarding this claim.
In the acquisition scenarios that Southeastern laid out, the management firm said that being purchased by private equity would alleviate the demand to push quarterly results and issue annual guidance.
The firm also suggested the company be acquired by another toy company, specifically Hasbro, stating that the two companies have been in talks for decades. “Hasbro has done a better job executing on digital growth than Mattel and therefore has more credibility in this important part of the business,” Southeastern wrote in the letter.
Finally, a potential acquisition by a media company would further help Mattel accelerate its IP strategy, per Southeastern. “The public market was not willing to pay for the success of the Barbie move and might not be willing to pay for a pipeline of other content at Mattel, but a media company would value these assets,” they stated.
Southeastern’s letter highlights missed value in Mattel’s IP and cash flow, Jefferies analysts said in a Thursday note. “We see PE optionality as credible, media interest as strategically sound, and a [Hasbro] takeout as unlikely,” they said.
