Ariel Investments, which has a 5.4% stake in the toy maker, said it believes the company's shares remain significantly undervalued
By Connor Hart
A major Mattel shareholder is calling for the toymaker to explore strategic alternatives, as the company deals with a sliding stock and now a chief-executive transition.
Ariel Investments, which has a 5.4% stake in Mattel, said Monday it believes the company's shares remain significantly undervalued with its current structure as a public company.
"By our estimates, a strategic buyer would pay a significant premium to your current share price," Chairman and Co-CEO John Rogers said in a letter to Mattel's board of directors reviewed by The Wall Street Journal.
Ariel said it believes Mattel should retain an independent financial advisory firm to explore strategic alternatives, which could include a divestiture of significant assets, a merger or an outright sale of the company.
"We appreciate Ariel Investments' longstanding investment in Mattel and their continued engagement," a Mattel spokesperson said. "Our Board of Directors and management team are committed to acting in the best interests of all shareholders and will consider the views expressed in Ariel Investments' letter, as well as the views of Mattel's other shareholders."
Mattel has already garnered takeover interest. The Journal reported last week that Authentic Brands Group has made an approach and been privately discussing an offer that could value the company at more than $20 a share.
The takeover report came on the heels of a surprise succession announcement. Mattel named Condé Nast Chief Executive Roger Lynch its next CEO, succeeding Ynon Kreiz, who is leaving to become co-CEO of Paramount.
Shares of Mattel jumped 19%, to $15.04, last Thursday, after the Journal reported on Authentic's approach. The stock was recently trading hands at $15.50, having lost more than a fifth of its value year to date.
Mattel's valuation is strikingly low, analysts said, considering the transformation of the business over the past several years and the potential equity of brands such as Barbie and Hot Wheels.
The maker of American Girl dolls and Uno playing cards successfully stabilized its core toy business under Kreiz, analysts said, but the company has struggled to expand beyond toys into entertainment. Mounting investments to drive its media push have squeezed margins, prompting shareholders to argue that a buyout could insulate Mattel from volatile quarterly earnings releases, or immediately connect its brands to an established distribution flywheel.
Southeastern Asset Management earlier this year called for a sale of the toy company, arguing its brands would be better off in the hands of a private-equity firm, competitor or large media company.
Ariel expressed confidence in Lynch, the incoming CEO, to do what is right for shareholders. Still, the asset-management firm said the timing for a potential deal is ripe, as Wall Street continues to undervalue Mattel and the current regulatory climate is open to major transactions.
"This is a once in a lifetime opportunity for the company to really look at strategic alternatives seriously," Rogers said in an interview.