Mattel Gives Up on Learning Co.

The troubled toymaker announced plans to sell its Learning Co. software division at a steep discount, also cutting its quarterly dividend and slashing jobs. It's a good first step -- but now Chairman and CEO Robert Eckert must focus on his stated goal of growing the company's core business.

By Dave Marino-Nachison (TMF Braden)
September 29, 2000

Robert Eckert, chairman and CEO of embattled toymaker Mattel (NYSE: MAT), took his first major step as Jill Barad's replacement today by putting his name on a number of restructuring moves the company hopes will restore its name and attractiveness as an investment.

The company listed three "key components" of its plan:

  • Selling its much-maligned The Learning Co. software division to an affiliate of Gores Technology Group. Terms of the deal, which includes a right for Mattel to get "future consideration," were not disclosed. However, as noted in today's edition of The Wall Street Journal, the sale will almost certainly stick Mattel with a steep -- if not essentially total -- loss, given the unit's $3.5 billion purchase price.
  • Moving to lower production and manufacturing costs, reducing royalty payments associated with licensing contracts, and lowering headquarters expenses by trimming 350 jobs -- a 10% cut.
  • Substantially reducing its quarterly cash dividend to $0.05 per share from $0.09, creating annual cash savings of $130 million. (LouAnn Lofton took a look at J.C. Penney's dividend reduction in arecent article.)

    All this is expected to carry $250 million in pretax costs, which will be recorded over a two-and-a-half year period. Of that, $150 million will be cash and $100 million will be recorded in the third quarter of this year. But looking forward, the company hopes to recognize $200 million in pretax savings over the next three years. (The company recorded $3.79 billion in combined advertising, promotion, selling, and administrative expenses in 1999.)

    Will Eckert be remembered as a hatchet man? "I realize that these objectives involve difficult decisions, as they have a very real and human component," he said in a statement. "But these measures are necessary to enable Mattel to realize its potential.... We expect that as a result of the actions announced today, we will generate increased earnings and cash flow."

    Eckert is probably right about the necessity of his actions. Freeing up cash is key, and the expense and cost savings coupled with the dividend reduction -- "Mattel is not facing a liquidity issue," he pointed out -- will certainly help.

    And the chairman and CEO certainly hopes to be able to grow as well as trim. His plan, though not necessarily surprising, is clear: to refocus the company on expanding its stable of key toy brands, such as Barbie, Hot Wheels, and Matchbox.

    "I took this job because it's a wonderful opportunity," he said on CNBC earlier this month. "We're going to refocus on the toy business. We're going to do a better job of executing our core business. We're going to globalize demand for our products. The future of Mattel is taking advantage of our brands."

    In other words, his work begins anew today.

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