Bloomberg News

Mattel Buys Thomas the Tank Engine Owner for $680 Million

October 24, 2011

(Updates with analyst’s comment in third paragraph.)

Oct. 24 (Bloomberg) -- Mattel Inc., the world’s biggest toymaker, acquired Hit Entertainment Ltd. for $680 million from a group led by private-equity firm Apax Partner Funds, to boost its pre-school business after losing Elmo this year.

The transaction will be financed with a combination of cash and debt and is expected to be completed in the first quarter, El Segundo, California-based Mattel said today in a statement. The deal, which includes the popular Thomas the Tank Engine brand, will close in the first quarter and won’t have a material impact on 2012 earnings, the company said.

Acquiring Thomas will increase the company’s pre-school offerings after a license to make toys based on “Sesame Street” characters such as Big Bird and Elmo moved from Mattel to rival Hasbro Inc. this year, said Margaret Whitfield, an analyst for Sterne Agee & Leach Inc. in New York.

“They couldn’t afford to lose Thomas after losing Sesame Street,” Whitfield, who recommends buying Mattel shares, said in a telephone interview. HIT Entertainment’s ability to create multimedia content such as television shows may also help Mattel improve current brands such as Monster High, Whitfield said.

Mattel, the owner of brands including Barbie and Hot Wheels, rose 1.6 percent to $28.14 at 10:55 a.m. in New York. The shares had gained 8.9 percent this year before today.

London-based Apax, which acquired HIT Entertainment in 2005 for 489 million pounds ($779 million), was seeking about $1 billion for the company, three people familiar with the matter said in February, after the company reported losses in 2009.

$180 Million Revenue

HIT Entertainment has more than $180 million of revenue and the purchase price represents 9.5 times the company’s earnings before interest, tax, depreciation and amortization, Mattel said. Mattel already had HIT’s license to make plastic and die- cast toys based on the Thomas brand and plans to add wooden items in 2013.

Mattel hasn’t made a major acquisition since the 1990s when it purchased Fisher-Price Inc. for $1.09 billion in 1993, Tyco Toys Inc. for $755 million in 1996 and American Girl LLC for $700 million in 1998.

This month, Mattel, led by Chief Executive Officer Robert Eckert, said third-quarter profit rose 6.2 percent to $300.8 million, or 86 cents a share, from $283.3 million, or 77 cents, a year earlier.

(Mattel will hold a conference call on the deal at 11 a.m. New York time. To listen, visit MAT US <EQUITY> EVT <GO>.)

--Editors: James Callan, Kevin Orland

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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