Hasbro Polishes Game Plan to Challenge Mattel

G.I. Joe jilted Barbie, yet it’s Joe who’s still trying to get over it.

Two years after rejecting a $5.2-billion buyout offer from toy industry leader Mattel Inc., No. 2 Hasbro Inc. lags far behind its rival in stock performance and is struggling to justify its decision to stay independent.

With strong 1997 earnings results released Thursday, a tough cost-cutting program and some potentially huge new licensing deals in the pipeline, Hasbro now hopes it is on the way toward making investors forget the quick profits they could have cashed had they accepted Mattel’s offer.

Hasbro, Mattel and their competitors will be trying to outdo one another in wowing retailers, suppliers and analysts at the Toy Fair, the industry’s annual gathering in New York City, opening Monday.

Hasbro--the 75-year-old maker of G.I. Joe, Mr. Potato Head, “Star Wars” action figures, Tonka trucks and games such as Monopoly, Clue and Candy Land--is counting on a new line of toys for preschoolers called Teletubbies, linked to a British-import TV show that will debut on PBS stations this spring. Hasbro also holds licensing rights to a potential summer blockbuster, Steven Spielberg’s computer-animated feature “Small Soldiers.”

As always, Mattel will counter with Barbie, the plastic juggernaut that accounted for $2 billion of sales last year, or more than 40% of Mattel’s total. The company hopes to dazzle little girls with devices that let them enter “Barbie’s world” by putting electronic pictures of themselves onto a computer screen with Barbie. A much-publicized resculpting job is also expected to boost sales of the doll itself.

Hasbro has been locked in a seemingly endless race with El Segundo-based Mattel.

In the mid-1980s, riding hit toys such as the Transformers and the acquisitions of Milton Bradley and Playskool, Hasbro shot past Mattel in sales and profits. Mattel later reclaimed its crown and then tried to consolidate its position with the surprise merger proposal.

On Jan. 29, 1996, the day Mattel made its high-pressure bid public, Hasbro shares briefly topped $30, a level they didn’t reach again until last July. The all-stock bid was estimated at $36, or just above the all-time high that Hasbro shares hit two months ago.

Hasbro maintains--and many analysts agree--that even if a deal had been struck, federal antitrust regulators would never have allowed a merger between the No. 1 and No. 2 toy companies.

Therefore, the $36 bid is a “false bogey,” Adam Klein, Hasbro’s executive vice president for global marketing, said in an interview Thursday.

But that doesn’t protect Hasbro from unflattering comparisons.

Mattel’s stock hit a new all-time high of $42.06 on Wednesday and is up 65% since its failed run at Hasbro. Hasbro shares, which closed at $34.94 Thursday, are up 20% over the same 24 months.

“Hasbro trades at a 20% discount to Mattel,” one prominent analyst noted, “and that doesn’t occur unless there’s a perceived gap in management, track record and product mix.”

Analysts say Hasbro’s acquisition binge of the 1980s and early 1990s left it with a hangover of manufacturing inefficiencies and an ill-coordinated global marketing strategy--problems that it has only lately begun to address.

Hasbro’s reliance on action figures also left it vulnerable when boys turned increasingly to computer games.

Hasbro on Thursday reported record sales of $3.2 billion for 1997 and profits that would have set a record but for an after-tax charge of $92 million related to the restructuring.

After escaping Mattel, Chairman Alan G. Hassenfeld vowed in early 1996 that he would deliver annual profit increases of at least 15% a year. So far--at least on a per-share basis--he has made good.

Absent the one-time restructuring charge, Hasbro earned $227 million or $1.77 per share last year, up 14.9% from $1.54 in 1996. The 1996 earnings were up 15% from the previous year’s.