Why Shares of Mattel Jumped Today

MarketsMotley Fool

What happened

Shares of toy maker Mattel (NASDAQ: MAT) jumped on Tuesday, a second day of gains following reports that rival Hasbro (NASDAQ: HAS) had made a takeover offer. Neither company has commented so far, but a report from Fitch Ratings pointing out the benefits of a merger could be responsible for the additional gains. Mattel stock was up about 5% at 11:30 a.m. EST, while shares of Hasbro were down about 1%.

Continue Reading Below

So what

Fitch Ratings expects a merger between Mattel and Hasbro to yield improved negotiating power with major customers like Target, Wal-Mart, and Toys "R" Us. Those three retailers account for about 38% of sales from the two companies. Fitch also made the point that Mattel and Hasbro are strong in different areas, Mattel with girls and Hasbro with boys.

A few things may stand in the way of an acquisition. Mattel CEO Margo Georgiadis, a former Google executive, has only been in that role since February. Selling to Hasbro now would end the company's latest turnaround effort before it had time to show results.

The stock price is another issue. Shares of Mattel traded for around $30 one year ago, hitting a low around $13 prior to this takeover news. Hasbro's offer price hasn't been disclosed, but my guess is that it's lower than Mattel's 52-week high. Whether the company would be willing to sell itself for such a depressed price is unclear at this point.

Now what

Investors are anxiously waiting for tangible news. They're driving up shares of Mattel in anticipation, but it's important to remember that a deal is far from guaranteed. While Mattel stock has had a good run over the past two days, those gains will likely disappear if the deal falls through.

10 stocks we like better than HasbroWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Hasbro wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 6, 2017

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool has a disclosure policy.