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Mattel moves to buy Mega Brands, moving into a category where Lego is king

Mattel makes a move into Lego's playing field by agreeing to acquire Mega Brands.
Mattel makes a move into Lego's playing field by agreeing to acquire Mega Brands.
Mattel, Inc.

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El Segundo-based Mattel, Inc. announced Friday it’s buying Canada-based Mega Brands in a deal worth 460 million dollars.  

Mattel is the world’s largest toy maker by sales, but it doesn’t really play in the construction toy category.  Lego is the powerhouse there, but Mega Brands, with its Mega Bloks, is number two.   Mattel CEO Bryan Stockton said for the past few years, “construction” has been one of the fastest growing toy categories. 

"It’s not just a boy’s toy anymore," Stockton told investors in a conference call announcing the deal. "It really crosses gender and ages. So we think it’s a great opportunity to expand our brands like Barbie and Hot Wheels into this important category."

Stockton added that acquiring Mega Brands will help Mattel build on its entertainment partnerships. Mattel has some licensing deals with companies like Viacom, owner of Nickelodeon and Disney, owner of Pixar and Marvel, but in the construction toy segment, again, Lego dominates. Sean McGowan, Toy Industry analyst with Needham and Company said with Mega Brand, Mattel could make a stronger play for more licenses. 

"In the future, as Mattel approaches these entertainment companies, it can also now much more credibly say, 'by the way, we can do construction toys, so if you want to give those rights to us, we can do a good job with them,'" McGowan told KPCC. 

McGowan said the Mattel-Mega Brands announcement comes after most of the toy industry finished 2013 on a low note. He said Lego was just about the only major company to post strong sales in North America in fourth quarter.

 "Mattel had weakness, MegaBrands had weakness, Hasbro, Leapfrog, a lot of other companies had weakness in the fourth quarter," said McGowan. "So this combination comes at a time when a lot companies are looking for ways to grow." 

Mattel expects the deal to close during the second quarter of this year.