Would Mattel Buy Leapfrog?

By TDmonthly Staff
February 2005

Mattel (MAT,) the nation’s No. 1 toy maker, was rumored to consider a deal to acquire LeapFrog Enterprises (LF,) an innovator of learning toys and games, according to one industry source.

In acquiring Leapfrog, Mattel would gain a dominant share of the burgeoning educational toy category. NPD estimates that learning toys account for approximately 7 percent of the $20 billion U.S. toy market. LeapFrog, which makes the educational toys Leapster and LeapPad, among others, has suffered from weak sales as of late. Its fourth quarter earnings will be announced via conference call on Feb. 15, 2005.

As of 4:02 p.m. ET on Feb. 10, 2005, LeapFrog’s trade price stood at $12.75; its market cap was $775.16 million; and its 52-week range saw a low of $11.50 in October 2004 and a high of 30.54 in February 2004. Its two-year high was recorded in October 2003, when shares surpassed $40.

Mattel, best known for its Barbie and Fisher-Price brands, saw domestic sales rise 10 percent in the final quarter of 2004, with Fisher-Price showing a 7 percent increase. Mattel hopes to include a variety of new products in its Fisher-Price line in 2005, including the Laugh and Learn toy for infants. If the acquisition does occur, Mattel, holding both Fisher-Price, which it bought in 1993, and LeapFrog, would hold a lion’s share of the educational toys’ market.

As of 4:01 p.m. ET on Feb. 10, 2005, Mattel’s price per share was $20.52, with a market cap of $8.52 billion. In the 52-week period, the stock price reached a low of $15.94 in August 2004 and a high of $20.95 on Feb. 8, 2005. The stock reached a high of approximately $23 in April 2003 and, despite a drop in the second-quarter of 2004, has been relatively flat since.

The purchase would bring Leapfrog’s CEO Thomas Kalinske back under Mattel’s roof. Kalinske served as President and Co-CEO of Mattel in the mid-1980s and served as CEO of LeapFrog from September 1997 to March 2002 before re-assuming the position in February 2004.

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Insider Transactions: MAT, HAS, AND LF.

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