Skip to Content
Stock Analyst Update

Is a Hasbro-Mattel Tie-Up Inevitable This Time?

Such speculation has fizzled in the past, and a similar fate could occur this go-round.

Mentioned: ,

The Wall Street Journal recently published an article detailing an approach that narrow-moat  Hasbro (HAS) made to assess a potential tie up with narrow-moat  Mattel (MAT). This speculation, without much detail, sent Mattel shares soaring more than 20% to around $18 per share.

This isn’t the first time the two businesses have been a subject of merger rumors (the last time such speculation was stirred was 2016), but it is the first time Hasbro’s market capitalization has been nearly double Mattel’s, placing it in a position to acquire a significantly depressed business. Historically, such a tie-up would either have been viewed as a merger of equals, or Mattel would have been the suitor, which would be the case had discussions been taking place a decade ago.

We don’t plan any change to our respective fair value estimates for Mattel and Hasbro, and we caution investors that such speculation has fizzled in the past, and a similar fate could occur this go-round.

Hasbro remains a diligent capital allocator, and has let prior discussions dissipate due to unfavorable terms. Media outlets speculated such issues occurred in the summer of 2017 surrounding a potential tie-up with LionsGate Films. It was also believed that the company had been in discussions with DreamWorks Animation in 2014, which also failed to result in a successful corporate marriage. For Mattel, we remain concerned that the new management team may not be keen on relinquishing a business at such depressed levels, when normalized earnings power is significantly higher than current levels, in our opinion. For reference, Mattel is forecast to deliver 5% operating margins in 2017, down from 18% in just 2013. Operating margins are slated to rise back to more than 15% in 2022 in our model, which would allow Hasbro to capture the business at a very undervalued price; even at $18, Mattel stakeholders could still be hesitant to agree to a sale. 

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.