Mattel to Acquire Mega Brands

logo_Mattel logoMattel Inc. and Mega Brands Inc. have signed a definitive agreement for Mattel’s acquisition, through a wholly owned subsidiary of Mattel Inc., of Mega Brands for $460 million.

The acquisition advances Mattel’s global growth strategy of building upon its world-class portfolio of brands by expanding into two of the fastest-growing toy categories. Mega Brands is the No. 2 player in the $4 billion construction building sets category with its Mega Bloks brand, as well as a competitor in the $2 billion arts and crafts category.

mega brands logoMattel’s portfolio of brands will complement Mega Brands’ flagship Mega Bloks brand and existing licensed brands, including Halo, Skylanders, Call of Duty, Assassin’s Creed, Power Rangers, Hello Kitty, and SpongeBob SquarePants. The acquisition will give Mattel the opportunity to broaden its relationship with its entertainment partners.

Mega Brands ranks among the top 15 toy companies globally in terms of sales, according to statistics published by The NPD Group last year. Additionally, the company achieved record sales of preschool construction toys.

Mattel plans to maintain Mega Brands’ expertise in manufacturing, both in Montreal and Tennessee, and plans to maintain the Mega Brands headquarters in Montreal.

The agreement provides for the acquisition of Mega Brands for C$17.75 per common share and includes the acquisition of all of the outstanding common shares and warrants of Mega Brands. This represents a premium of 32 percent to the 30-day, volume-weighted average price of Mega Brands common shares on the TSX as of February 26. Mattel plans to fund the acquisition through a combination of new debt and cash on hand.

The purchase price above represents net consideration of C$7.81 per 20 warrants. Warrant holders may acquire one common share of Mega Brands in exchange for every 20 warrants at an exercise price of C$9.94 per common share. The warrants expire on March 30, 2015.

The Board of Directors of Mega Brands has unanimously approved the transaction and recommends that Mega Brands common shareholders approve it. The financial advisor to the Board of Mega Brands has provided an opinion that the consideration proposed to be paid to Mega Brands common shareholders is fair from a financial point of view.

Each of Fairfax, Victor Joseph Bertrand, Marc Bertrand, and Vic Bertrand, who together hold approximately 39 percent of the outstanding common shares of Mega Brands, have entered into voting support agreements and agreed to vote their common shares in favor of the arrangement.

The arrangement agreement provides that Mega Brands is subject to non-solicitation provisions and provides that the Board of Directors of Mega Brands may, under certain circumstances, terminate the agreement in favor of an unsolicited superior proposal, subject to payment of a termination fee of $12 million to Mattel and subject to a right of Mattel to match the superior proposal in question.

In connection with the closing of the arrangement, Mega Brands intends to refinance and, thereafter, redeem all of its outstanding 10 percent senior secured debentures due March 30, 2015, at a redemption price equal to 105 percent of the principal amount of the debentures, plus accrued and unpaid interest, pursuant to the terms of the debenture indenture.