Barbie dollmaker Mattel said Monday it agreed to acquire The Learning Company, an educational software publisher, for about US$3.8 billion. This gives Mattel control of popular programs like Reader Rabbit and enables the company to gain technical expertise for creating electronic commerce sites and interactive toys.
Separately, the world's largest toymaker (MAT) said its fourth-quarter sales ending 31 December will be about US$500 million lower than last year. Mattel blamed a decline in product orders from retailers for the falloff.
"We think Barbie can be a great educational brand," said Kevin O�Leary, president of The Learning Co. "Mattel has very popular brands like Hotwheels and Matchbox. There�s a lot of potential here" to incorporate them into new and highly marketable software titles, he said.
With the acquisition, Mattel, maker of toys like Barbie and Fisher-Price products, gains one of the most venerable lineups of software titles. Last June, The Learning Company agreed to acquire Broderbund Software, another educational software company, for $330 million. With the latest purchase, Mattel, based in El Segundo, California, becomes the largest consumer software vendor after Microsoft.
Under terms of the agreement, Mattel will pay $33 a share for The Learning Co. (TLC), based in Cambridge, Massachusetts. The companies said they expect the acquisition to be completed in March or April.
"With software interactivity comes multiple marketing opportunities, as children want the figure or learning avatar they see on screen to come to life as a toy," said Ron Rappaport, analyst at Zona Research.
More importantly, The Learning Co. could help Mattel to launch a solid e-commerce Web site, O�Leary said.
"We think we can grow our Internet business to include Mattel."
In 1998, The Learning Co. did $15 million in online sales, and is projecting $30 million next year. The company's Web site gets 2.1 million unique monthly visitors, and 50 million monthly page views, said O�Leary.
By setting up an industrial-strength Web site, Mattel could sell its toys directly to kids and parents without retailers.
It also could avoid snafus like the one it revealed in a separate announcement: Toys 'R' Us, the world's biggest toy retailer, reduced its inventory of Mattel products by more than 50 percent, another factor in the $500 million revenue shortfall.
"We expect our 1998 sales to be flat with last year," said Jill Barad, Mattel's CEO.
Barad said Mattel expects earnings for the year to be about $1.20 a share, 33 percent below the company's previous estimate. Analysts were expecting earnings of $1.81 a share for the year, according to Zacks Investment Research.
"The entire toy industry is suffering from pretty poor financial performance," said Seema Williams, an analyst at Forrester Research. "One of the things we�re seeing is interactive groups are often the fastest growing groups" in toy companies.
Of course, Mattel could have timed the acquisition better, some analysts said.
"The $33 [a share] price is fair for TLC," said Mike Wallace, an analyst at Warburg, Dillon, Read. "But announcing it the same day Mattel announces a puke fourth quarter, when they know the stock is going down, doesn�t make any sense. If you're a TLC shareholder you're not very happy."
Mattel's stock sank $8.19 to $21.94, and The Learning Co. dropped $3.31 to $25.
