Toy manufacturer and entertainment specialist Mattel (NASDAQ:MAT) generated business headlines earlier today on reports of a takeover interest. According to Reuters, private equity firm L Catterton — which is backed by luxury goods brand LVMH (OTCMKTS:LVMUY) — offered to buy out the toy company. Mattel stock likely jumped as prior efforts to turn the ship around have not succeeded.
Per the report, the news of the asset management firm’s interest in acquiring the entertainment specialist may prompt competing bids. The spotlight will almost certainly be on sector rival Hasbro (NASDAQ:HAS), which knows about L Catterton’s bid. Currently, management is in discussion about whether it too should submit an offer.
For context, Hasbro and Mattel have held merger talks. However, the negotiations have ultimately not been fruitful. Because the proposed buyout may be the only way to extract value out of the toy brand, Mattel stock jumped 20% earlier on Monday. That move gave the company a market capitalization of $6.5 billion.
Activist Pressure Puts the Squeeze on Mattel Stock
Pressure from high-level stakeholders has added to the overall uncertainty over Mattel stock. In particular, activist investor Barington Capital called on the toy manufacturer to implement much-needed changes earlier in February. Among the proposals included selling Mattel’s Fisher-Price and American Girl brands and separating the roles of CEO and chairman.
Another pressing concern for Mattel stock is the underlying financial situation. Although the toymaker enjoyed a branding boost thanks to the Barbie film, MAT suffered a 52-week loss of 23% (prior to Monday’s pop). Even with the boost included, the equity is still down around 13%. Driving anxieties over the enterprise is Mattel’s profitability potential, especially in its management of unprofitable toy franchises.
It must be said that in the first quarter of this year, the company posted losses that were smaller than experts had anticipated. Per Reuters, tight cost controls helped achieve this “earnings” beat. However, this good news came amid a backdrop of weak sales, which remains a headwind against Mattel stock.
Indeed, analysts, on average, forecast fiscal 2024 sales to land at $5.38 billion. However, that would be a 1% decline from last year’s print of $5.44 billion. In the following year, experts believe that sales may rise to $5.54 billion. However, that would only constitute a 2.9% lift from projected 2024 sales. And it would only be a less-than-2% move from 2023’s result.
Investors appear to be losing patience. Therefore, Mattel stock swung higher, likely because a buyout may be the last-ditch effort to salvage something of value.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
