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Mattel Wins FTC OK to Acquire Tyco Toys

Mergers: About 2,700 will be fired. Mattel expects to expand core lines, shed non-core ones.


Mattel Inc. won Federal Trade Commission approval Thursday to buy Tyco Toys Inc. in a $755-million stock deal that will place Tyco's Tickle Me Elmo and Matchbox cars under the same corporate roof as Hot Wheels and Barbie.

About 2,700 jobs--nearly 10% of the combined work force--will be eliminated as the two companies are integrated, Mattel said. Mattel, which employs about 2,000 at its El Segundo headquarters and about 24,000 at assembly plants and other facilities worldwide, said it will determine in the near future which jobs will be eliminated.

There are about 2,000 jobs at the Mount Laurel, N.J.-based Tyco, which designs and markets toys that are manufactured by independent contractors.

Job cuts and other cost reductions from the merger will result in savings of $700 million in the next five years, Mattel said.

On the other hand, Mattel will incur $275 million in merger and consolidation costs in its first quarter, which ends March 31, the same day it expects to complete its combination with Tyco. Of that total, $100 million is related to a restructuring and product line consolidation that Mattel Chief Executive Jill Barad announced in February.

"Our company is in the best strategic position in its 52-year history," Barad said Thursday. "The merger with Tyco brings us valuable new franchises, which will allow us to focus even more on brand building."

With the merger approved, Mattel will be concentrating on plans to boost sales of its four core businesses: Barbie dolls, Hot Wheels, the Fisher-Price line and Disney-licensed products. Those four lines generated 87% of Mattel's total 1996 revenue, an increase of 7%, despite Mattel's efforts to strengthen its position in its weaker product categories: board games, action figures for boys and sports products.

The company plans to shed some products in its non-core lines but will do so only after an evaluation period, Mattel spokesman Glenn Bozarth said.

Mattel will probably consider selling some lines in its sports division--products such as the Wham-O Hula Hoop, the Frisbee or the Morey Boogie Board.

"The outdoor play equipment has not sold as well as some of the other lines," said Sean McGowan, an analyst at Gerard Klauer Mattison in New York. "Retailers are less interested because sales of these products are more weather-sensitive and because these items occupy more space than other toy products."

Mattel can now consider selling some non-core lines because it will soon control additional products through the Tyco acquisition, analysts said.

"This transaction strengthens Mattel across the board," said David Leibowitz, an industry analyst at Burnham Securities in New York. "Mattel will be adding key product lines in particularly competitive industry categories."

For example, Tickle Me Elmo and Tyco's other Sesame Street toy characters will bolster Mattel's appeal to preschoolers, a market now served by Mattel's Disney products and its Fisher-Price division, Leibowitz said.

Mattel also will become even stronger in the toy vehicle category because Tyco's Matchbox collectibles will complement the Hot Wheels racing toys, Leibowitz said.

Mattel announced its agreement to buy Tyco in November. Mattel said the combined company will have 19% of the U.S. market in its first year. It currently has about 16% of the market.

Tyco is the nation's third-largest toy maker behind No. 1 Mattel and No. 2 Hasbro Inc. The deal with Tyco comes about a year after Mattel withdrew a $5.2-billion offer to buy Hasbro. Hasbro resisted Mattel's offer, contending that federal regulators would have blocked such a deal on antitrust grounds.

In contrast, Mattel's bid for Tyco was a friendly deal that created no regulatory controversy. Under the deal, Tyco shareholders will receive $12.50 in Mattel stock for each full share of Tyco stock.

Mattel shares added 25 cents to $24.50, and Tyco rose 37.5 cents to $12. Both trade on the New York Stock Exhchange.

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