A merger between Mattel and Fisher-Price was an ideal way to produce better sales for both companies and to compete with the number one toy maker at the time, Hasbro. Mattel gained control of the toy market by the end of the decade.
By 1993, Mattel was slumping in sales and sitting at number two in the $17 billion toy industry. Mattel, with a history of mergers of various success, was looking for another way to gain market share by adding companies to its fold. Fisher-Price had hit a ceiling. The company was wasteful in production and did not have the infrastructure to expand globally. The two companies had flirted with the idea of a merger two years earlier, but Fisher-Price’s parent company, Quaker Oats, would not allow the deal to go through. Since that time, Hasbro had surpassed Mattel for the number one spot in the industry and was obtaining more market share because its young-child division was fully developed. Mattel lacked such a division and sought desperately to catch up with its competitor. Hasbro’s Playskool line was competing directly with Fisher-Price; however, Fisher-Price did not have the resources to compete with such a large company. Since the last attempt at a merger, Fisher-Price had also gained its independence from Quaker Oats Company and had begun to trade on the New York Stock Exchange. This led to an easier transition and finalization of a merger that would create the world’s largest toy company.
The merger that was announced on August 19, 1993, was considered a strong business decision. Mattel would gain a critical share in the market, the zero- to five-year-old bracket. Fisher-Price had been the leading name in this area almost since its incorporation in 1930. The brand name boasted near 100 percent name recognition among American parents, but its activities were limited outside the United States. Mattel had global operations that far surpassed those of Fisher-Price. With factories in Indonesia, Portugal, China, Mexico, Malaysia, Taiwan, Australia, and other parts of the globe, Mattel provided an infrastructure for the distribution of Fisher-Price products globally. Mattel also provided the business sense to restructure Fisher-Price to cut overhead and to build a larger profit margin.
Mattel brought many possibilities to the table for Fisher-Price. Barbie, Mattel’s flagship toy line, had been a solid source of income since its conception in 1959, with sales approaching $1 billion by 1993. Mattel’s chairman of the board, John Amerman, had spent the last six years rebuilding the Mattel franchise, focusing on its core elements, Barbie and Hot Wheels. Amerman had rescued the company twice after huge financial setbacks. The first disaster was in the fledgling video game industry, where Mattel lost nearly $400 million because of failed efforts at producing a console system; the second came when the market for the popular He-Man action figures suddenly dried up in 1986. Amerman quickly and cautiously turned the company around in 1987 by reducing its output and slashing overhead 40 percent. His experience would benefit the restructuring of Fisher-Price after the merger.
Under Amerman’s direction, Mattel successfully negotiated the licensing rights to Walt Disney Company characters in 1989. Because of the enormous popularity of Disney movies during the early 1990’s, Disney-licensed toys accounted for half a billion dollars in sales per year. With excess cash flow and new possibilities for licensing, Fisher-Price would be able to grow from what Mattel could offer. Some of Fisher-Price’s greatest successes of the past revolved around the licensing of Disney television shows and Sesame Street. The excess capital and experience abroad would secure the future for the Fisher-Price line under Mattel.
Fisher-Price not only would allow Mattel to further penetrate the markets but also would offer more brand recognition. With such recognition, Mattel could build further customer loyalty. Under Ronald Jackson, Fisher-Price’s president at the time of the merger, the company had moved to consolidate its holdings and cut overhead. During the mid-1980’s, under the direction of its parent company, Fisher-Price had let its attention to its main product lines such as Little People and other educational toys for toddlers dwindle, allowing the company’s main competitors gain market share. In return, overproduction and poor marketing led to the leadership change that brought in Jackson. However, it seemed that Fisher-Price’s current global infrastructure would not be able to propel the business forward rapidly in the coming decade—this was one reason a merger was considered.
The merger of Mattel and Fisher-Price was completed by December 1, 1993. The previous merger attempt was ultimately foiled by the lack of successful negotiation by the companies to establish a stock conversion for shareholders, but the successful 1993 merger established a favorable rate. One share in Fisher-Price was exchanged for 1.275 shares of Mattel common stock. Mattel immediately took action to streamline its new Fisher-Price division. Plants were closed in Mexico, and operations were combined in other parts of the world to cut overhead. However, Fisher-Price kept its main offices in East Aurora, New York, rather than moving to the headquarters of its new parent company in El Segundo, California. The merger was a success from the beginning, as Mattel’s earnings went up 27 percent in 1993.
The merger led to two more extremely profitable years for Mattel and Fisher-Price. With capital from its parent company, Fisher-Price was able to tap into new markets while focusing on its traditional target age group. It began to distribute board games and video games and raised production on its popular Power Wheels line. The added volume, customer base, and revenue allowed Mattel to consider merger ideas with then number two toy producer Hasbro. While issues about antitrust suits squashed the plan, Mattel did purchase many smaller companies in the years that followed, including the third-largest toy company; Tyco Toys. The acquisition of Tyco eliminated a large chunk of competition for the toddler market, and Fisher-Price was granted total control of Mattel’s production in this market. The merger also proved to save Fisher-Price in 1998, when the company had to recall ten million Power Wheels vehicles because of possible flammability. Mattel paid for the $30 million recall.
The merger of Mattel and Fisher-Price was one of many mergers in a growing trend among global companies. It was also the largest merger within the toy industry. The merger was beneficial to both companies: Mattel received increased revenues, improved customer loyalty, an increased consumer base, and quality products to sell for years to come; Fisher-Price could move to a more global strategy that allowed the company to tap the more populated Asian and Latin American markets. Fisher-Price received the capital needed to restructure and reinvent the company, and it received coveted licenses to broaden its toys’ appeal. The merger allowed Fisher-Price to become the dominant force in the preschool toy market and allowed Mattel to become the number one toy company in the world.
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Miller, G. Wayne. Mortal Combat: A True Story of Toys, Big Money, and Brutal Business. New York: Random House, 1998. Discusses hostile takeover attempts in the toy industry, with a focus on the Mattel-Hasbro rivalry. Information on 1990’s toy company mergers. -
_______. Toy Wars: The Epic Struggle Between G.I. Joe, Barbie, and the Companies That Make Them. New York: Times Books, 1998. Details the history of the business and describes how the two giants divided and controlled the toy industry. -
Schoenhaus, Ted, and Sydney Ladensohn Stern. Toyland: The High-Stakes Fame of the Toy Industry. New York: Contemporary Books, 1991. Looks at the American toy industry, its trends, product creation, boom and bust cycles, the companies that have existed over the last century, and some popular products.
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