Oaktree said that it had been trying to buy the company since March, but the… (Jennifer S. Altman, For…)
Malibu toy maker Jakks Pacific Inc. has received a $670-million takeover bid from Oaktree Capital Management after the Los Angeles investment firm tried for months to work out a friendly deal with the company.
One of the five largest U.S. toy companies, Jakks designs and markets action figures, electronics, dolls, costumes and stuffed animals and is a licensee of major brands including Disney, Nickelodeon, Cabbage Patch Kids, Hello Kitty and Pokemon. It was founded in 1995 and went public a year later.
In a letter to Jakks' board Tuesday, Oaktree offered to take the company private for $20 a share in cash, a 25% premium over the toy maker's closing stock price of $16 that day.
On Wednesday, shares of Jakks rose $3.57, or 22.3%, to $19.57.
Oaktree said that it had been trying to buy the company since March, but the toy company had "repeatedly rebuffed" its efforts. Oaktree Funds, one of Jakks' largest shareholders, holds roughly a 4.9% stake.
"We are disappointed that you have repeatedly declined to pursue meaningful discussions with us," the letter from Oaktree managing directors B. James Ford and Matthew Wilson said. "Since the time of our initial discussions in March, macro-economic conditions have deteriorated significantly, and the company's prospects have not improved."
Oaktree said it thought Jakks shareholders would "welcome the certainty of a significant all-cash premium." The firm added that it was prepared to increase the price of its offer if Jakks could demonstrate further value; it also said it would commit resources to help Jakks fund future acquisitions, obtain new licenses and embark on an aggressive growth strategy.
Jakks' Chief Executive Stephen Berman responded to the investment firm in a letter Wednesday, saying the company would "carefully consider your indication of interest … and will continue to act in the best interests of the company and its shareholders."
If the deal is approved, it would be the largest in the toy industry in more than five years, according to Bloomberg data.
Gerrick Johnson, a toy analyst at BMO Capital Markets, said the offer seemed "to be too much of a discount" and said he was looking for a price of $24 a share.
"They're going to do well this holiday season, which will set them up for a nice 2012, so to sell out for $20 would be like punting on first down," he said. "For a hostile deal, you need a little bit more of a premium."
In an interview with The Times last week, Chief Financial Officer Joel Bennett said Jakks had slowed its rate of hiring because of the economy. The company currently has about 725 employees.
In its most recent quarter, Jakks reported profit of $4.2 million, or 16 cents a share, compared with $3 million, or 11 cents, in the same quarter last year. Sales for the quarter, which ended June 30, totaled $131.9 million, up 7% from $123.3 million in the year-earlier quarter.
"They've done well to become more consistent with their earnings: less hit-driven, more stable," Johnson said.
Still, the company could be managed better and made more profitable, said toy analyst Sean McGowan of Needham & Co. "It's just not run with a lot of discipline."
Both analysts said if Oaktree succeeded in its buyout attempt, it probably would shake up Jakks' executive team and "probably have someone in mind already to replace management," Johnson said.
A call to a Jakks spokeswoman was not returned. A spokeswoman for Oaktree declined to comment. The money management company's letter said it was prepared to take its offer directly to Jakks shareholders "should the need arise."