Why did Mattel buy Mega Bloks? To defend against Lego

Time for Barbie to put on her hard hat

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Minifig gesturing at a vintage Barbie

Mattel’s purchase of Canada’s Mega Brands Inc., makers of Mega Bloks, is a defense strategy against rival Lego. (Photo illustration: Graham F. Scott/Barbie photo: RomitaGirl67/Minifig photo: Brad Montgomery)

American toy giant Mattel announced Friday that it has acquired Quebec-based toy creator Mega Brands for US$460 million. While Mega has a number of popular toy brands under its purview, including the Rose Art crafts line, Skylanders and Power Rangers, it’s the company’s Mega Bloks building sets that really give it value in today’s toy market.

Thanks to Mega Bloks, Mega Brands is currently the second-largest maker of construction toy sets in the world, a global toy market sector that is worth about $4 billion and has “one of the fastest growth rates over the past three years,” Mattel chairman and CEO Bryan G. Stockton said in a release.

And that’s why Mattel wanted Mega Bloks: it needs a defense against rival Lego Group. Lego has been pushing more and more into Mattel’s girl-marketed toy turf, successfully debuting its “Lego Friends” line two years ago. Now it’s time for Barbie to put on her hard hat and muscle in on Lego’s construction business.

Mega Bloks will fill what had become an increasingly glaring product hole for Mattel, the fast-growing construction toys segment. While the toy industry in general hasn’t seen a growth in sales in the U.S. recently, construction toys seem to be an exception to the rule.

Lego shows the power of this segment of the toy market. The company says it increased its 2012 revenue to US$4,040 million, a 25% increase from the previous year, which nearly tripled its 2007 sales. Momentum slowed slightly in 2013, but the company’s revenue still managed to grow 11%.

Mega also brings a number of toys with big-name video game brands that are heavily marketed to boys to the table, including Halo, Call of Duty and Assassin’s Creed.

The terms of the agreement allows Mattel to acquire Mega Brands for C$17.75 per common share. Mattel will also acquire any of Mega Brand’s outstanding common shares and warrants, and will fund the acquisition by using new debt as well as cash on hand.

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