2023-04-03 11:47:32 ET
Mattel ( NASDAQ: MAT ) management’s rumored consideration of a sale to a private equity firm would be “irresponsible,” according to DA Davidson. However, that does not mean M&A is completely out of the question.
Equity analyst Linda Bolton Weiser told clients that messaging from Mattel ( MAT ) has been somewhat mixed. In mid-March, management lowered expectations for the first quarter but maintained full-year guidance. Most of the pressure on margins and EBTIDA is expected to come as a result of inventory clearing actions. While these actions are expected to hamper results in the near term, there appears little rationale to sell to private equity in her view.
“We think it would be irresponsible for the Board to sell the company now when the valuation is low due to something that is transitory (retailer inventory reductions),” she wrote.
Instead, Weiser said that she and her team have “had fleeting thoughts about MAT and HAS combining” amid struggles for the two toymakers’ respective management teams. She explained while previous attempts to combine were abandoned in consideration of potential antitrust concerns, the companies are now more globalized with less concentration risk in toys.
“With only 46% of Hasbro’s EBITDA coming from the toy business (once they sell Entertainment), and with 54% of EBITDA now coming from Gaming, maybe one could argue HAS isn’t even a toy company,” Weiser wrote. “With the demise of Toys “R” Us and other retailers like K-Mart, the toy companies’ customer base is that much more concentrated, supporting the notion that consolidation of the toy industry is warranted.”
She added that the lack of action by regulators in regards to Disney’s acquisitions of key intellectual properties in Marvel and Lucasfilm, a Mattel ( MAT ) and Hasbro ( NASDAQ: HAS ) combination could reach approval as well. For now, the consideration of a combination remains only speculative however.
Weiser maintained a Buy rating on both Hasbro ( HAS ) and Mattel ( MAT ). She assigned an $80 price target to the former and a $23 target to the latter.
Read more on Hasbro’s entry to theaters with Dungeons and Dragons .
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Mattel sale ‘irresponsible’ at current valuation, Hasbro merger could make sense - DA Davidson