Why Hasbro might purchase Mattel

Will Barbie before long have her own My Small Pony? Could there become Hot Wheels variations of Tonka trucks?

It could happen if the rumors of a good mega plaything merger between Mattel and Hasbro become a reality.

Mattel (MAT) shares surged more than 20% on Monday following the Wall Street Journal suggested later Friday that Hasbro was first considering a takeover give for its struggling rival. Hasbro’s (HAS) stock popped practically 6%.

Mattel’s stock rose 5% more Tuesday even though Hasbro was smooth. Hasbro had no touch upon the takeover talk. Mattel was not immediately designed for comment.

A offer would unite Hasbro, the owner of Mr. Potato Mind, Monopoly, Tonka, My Small Pony & most Disney plaything licenses, with Mattel, the parent of Fisher-Advertising price, Thomas and Friends, Barbie and Warm Wheels.

Why might a offer make sense? Hasbro is operating from a position of strength. Its inventory is up about 25% this season. Analysts expect Hasbro’s earnings will increase 12% this season and that revenue will rise practically 7%.

Simply put, Hasbro has the toys that youngsters want — and it might scoop up Mattel on the cheap.

That’s because Mattel, which shed the Disney (DIS) license — especially the lucrative line of Princess dolls and “Frozen” toys — to Hasbro in 2016, has been around a tailspin.

Profits have been falling as revenue have slid. The business also suspended its dividend to shareholders previous month following its latest bleak earnings article.

Related: Barbie’s first hijab

Mattel brought in a new CEO, past Google (GOOGL, Tech30) executive Margo Georgiadis, earlier this year to target more on high-tech toys. But that has not stopped the bleeding. Even with the stock’s latest rumor-fueled benefits, Mattel shares are down 33% this season.

Another possible reason for a toy tie-up: Both companies could have a disappointing holiday season and a tough 2018 due to the bankruptcy of Toys ‘R’ Us. A mixture could supply the two companies considerably more clout with other stores that sell their toys.

Hasbro and Mattel each warned previous month that fourth-quarter benefits will not be as strong as previously thought due to the troubles facing Toys ‘R’ Us. That’s as well a key reason why Hasbro’s stock, regardless of the impressive gain this season, is down 17% from its 52-week excessive.

Hasbro’s earnings and revenue growth are anticipated to slow next time, and Wall Street is forecasting another decline in income for Mattel in 2018. The two companies could arguably perform better if they were united.

Still, it remains to be to be seen whether Mattel really wants to be acquired — and, if it did, whether antitrust regulators would allow such a deal.

Related: Hasbro hurt by Playthings ‘R’ Us bankruptcy

Mattel tried to get Hasbro once before, in 1996, but Hasbro turned the give down, citing considerations that the companies would need to sell several brands to get government acceptance.

Regulators could even so argue today that a Hasbro-Mattel offer could create a good monopoly — the real-lifestyle kind — but officials might permit the merger to move Go this time around.

That’s because the entire toy market has been struggling.

Various kids prefer to play video games on Nintendo (NTDOY), Microsoft (MSFT, Tech30) and Sony (SNE) consoles, or on apps. The digital environment hurting old-fashioned toy makers.

The rise of Amazon (AMZN, Tech30) and Walmart (WMT) — both of whom pride themselves on offering deep discounts — may also be hurting traditional toy companies. Their increased clout makes it tougher for toy corporations to sell their products at reduced price.

Not the mighty Lego is immune. The maker of the plastic toy bricks posted a shock drop in revenue in September and declared layoffs, too.

Shares of smaller plaything corporations Jakks Pacific (JAKK) and Canada’s Spin Master, making Hatchimals toys, have been hit during the past month, too, due to concerns about the Toys ‘R’ Us bankruptcy.

Thus while a Hasbro-Mattel may well not have made impression 20 years before, the timing might be right now.

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