Mattel, Hasbro would face rising antitrust worry over mega deals
[NEW YORK] A merger of Hasbro and Mattel, which would unite two of the biggest toymakers, would need to win approval from antitrust officials in Washington who are increasingly saying no to deals marrying the dominant players in an industry.
Competition watchdogs, who are grappling with a logjam of mega-mergers following a frenzy of deal-making last year, have taken an aggressive stance against tie-ups in concentrated industries, opposing transactions such as Comcast Corp's bid for Time Warner Cable Inc.
The antitrust review, which would probably fall to the Federal Trade Commission, will hinge on how broadly officials define the market, according to Jonathan Kanter, a lawyer at Cadwalader, Wickersham & Taft LLP in Washington. If the review focuses narrowly on the companies' overlaps in specific toy categories, the deal could probably win approval contingent on the sale of some product lines, he said.
If enforcers take a broader view and see the combination as uniting two of the country's biggest toymakers, leaving just Denmark's Lego A/S as the next biggest competitor, the deal could be in for a rough ride, he said.
"Are they going to look at it through the traditional approach of the last 20 years which has been focused mostly on defining narrow markets and evaluating the merger segment by segment?" said Mr Kanter.
"Or are they going to continue the trend of looking at deals more holistically and examine them based on the broader impact? That'll ultimately determine the fate of the deal."
The possible toy deal, reported by Bloomberg News on Thursday, would bring together Mattel's strength in the girls' category and Hasbro's dominance over the boys' toy aisle, while making the combined company a stronger competitor to Lego, Europe's biggest toymaker, which has been growing faster than either of its US rivals.
Mattel Chief Executive Officer Chris Sinclair is looking to revive the company's Barbie business after losing market share in recent years to Lego as well as Hasbro's reinvigorated My Little Pony brand. Revenue at El Segundo, California-based Mattel is set to take a hit this year as the licensing rights to Walt Disney Co.'s lucrative Frozen and Princess brands shift to Hasbro.
Still, the combination of the two companies would account for about US$5 billion of the US$24 billion US toy market, in which negotiating power has shifted to retailers, according to Jaime Katz, an analyst at Morningstar Investment Service. That might not be enough to raise concerns among antitrust officials, she said. The bulk of Hasbro and Mattel revenues are derived from the same four outlets: Wal-Mart Stores Inc, Toys "R" Us Inc, Target Corp and Amazon.com Inc, according to data compiled by Bloomberg.
Another question is whether the tie-up of two of the top three toymakers in an industry where there are dozens of smaller competitors would raise the same concerns as a deal that leaves only one major player. That scenario prompted the FTC to sue last year to block Staples Inc's takeover of Office Depot Inc, which would leave only one national office supply retailer. That case is scheduled to go to trial in March.
The antitrust agencies have shown an aggressive streak recently in challenging mergers in concentrated industries, such as the Justice Department's lawsuit to block Electrolux AB's purchase of General Electric Co's appliance business, which would have allowed Electrolux and Whirlpool to dominate the market for ovens. GE abandoned the sale in December.
"The agencies' view is the sky is not the limit in terms of merger activity, and when you get down to very few competitors, and those competitors start merging, you're going to get stepped up enforcement," said Allen Grunes, an antitrust lawyer at the Konkurrenz Group in Washington.
The FTC and the antitrust division of the Justice Department share authority to review mergers based on expertise. The FTC filed a complaint against Toys "R" Us in 1996, which means it's most likely to scrutinize the possible tie-up of Hasbro and Mattel.
Once concern could be the combined company's dominance of shelf-space in stores, said John Staszak, who follows Mattel for Argus Research Corp. Enforcers might also look at the enhanced negotiating power the companies could gain with retailers and whether the deal could make it more expensive for the big-box stores to stock a bundle of products for their shelves, said Amanda Wait, an antitrust lawyer at Hunton & Williams LLP in Washington.
"There's a transaction cost issue," she said. "If I'm Target and I don't have Mattel, then I have to negotiate individually with four or five other companies to get to the same product line as I would have been able to get to just negotiating with Mattel."
BLOOMBERG
No comments:
Post a Comment