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$85-Million Deal : Coleco OKs Hasbro Buyout Offer

June 16, 1989|From Associated Press

HARTFORD, Conn. — Coleco Industries agreed Thursday to be bought by Hasbro Inc. for $85 million, marking the likely end of the company that made the hottest-selling toy in U.S. history, the Cabbage Patch Kids doll.

Hasbro, the largest American toy maker, will receive all of Coleco's product line, which includes Scrabble and Parcheesi board games, as part of the all-cash deal, Coleco Chairman Morton Handel said.

The deal still must be approved by U.S. Bankruptcy Court in New York, where Coleco, swamped with $540.3 million in debt, sought protection from creditors a year ago. A hearing on the sale is expected next week or in early July, Handel said.

Coleco is to receive warrants to purchase 1 million shares of Hasbro stock as part of the deal. Hasbro, based in Pawtucket, R.I., will get inventory, equipment to make products and some accounts receivable.

Appalachian Artworks Inc., creator of Cabbage Patch Kids, and Coleco directors also must approve the deal, which must be completed by July 17.

If the deal is approved, most of Coleco's 250 employees are expected to be laid off, although some may be hired by Hasbro, Handel said.

Coleco has about 75 salaried workers in Avon, Conn., 75 in Mayfield, N.Y., and a total of about 100 assembly-line workers at both locations.

"Coleco always stood for innovation and the ability to take risks," said Paul Valentine, a toy analyst with Standard & Poors in New York. "The industry is poorer because of their demise."

'Good, Stable Games'

Russian immigrant Maurice Greenberg founded the Connecticut Leather Co. in 1932. The firm company expanded its leather and shoe products line to toys in 1954 and its name was changed to Coleco in 1961.

Analysts said Coleco ran into trouble after the phenomenal success of the Cabbage Patch doll, which became the best-selling toy of all time with more than $600 million in sales in 1985.

David Leibowitz, senior vice president of American Securities Corp., said Coleco borrowed money to expand after the success of the Cabbage Patch dolls.

But when Cabbage Patch Kids sales tumbled and new products, including Adams home computer and toys based on the Rambo movies, did not sell, Coleco couldn't pay off the new debts, he said.

Hasbro, which makes GI Joe, Mr. Potato Head, My Little Pony and Transformers, had sales of $1.34 billion last year, up from $104.3 million in 1980. Hasbro in the last decade has bought big-name companies, including Milton Bradley Co., and introduced a steady stream of new products.

Hasbro Executive Vice President Barry Alperin said of the Coleco deal: "It means the acquisition of good, stable game products, like Scrabble, Parcheesi and Aggravation . . . and it's a good chance to add to our toy division."

After the transaction, Coleco will have as much as $150 million in cash, $85 million from Hasbro and about $65 million it had in banks in mid-March, Handel said. The cash will be used to pay off the company's debts, he said.

Coleco also said it would retain some real estate assets, which will be converted to cash.

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