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Mattel Builds Portfolio With Mega Brands

NEW YORK (The Deal) -- Toymaker Mattel (MAT - Get Report) said Friday it would acquire Mega Brands for $460 million in cash and assumed debt, adding a suite of construction and craft products to its massive portfolio of brands.

Terms of the deal call for Mattel to pay C$17.75 ($16.03) per share in cash for Montreal-based Mega, a premium of 36% to the target's Thursday C$13.07 close. The agreement includes a $12 million termination fee payable to Mattel under certain circumstances and provides Mattel the option of matching any superior proposal.

Investors holding about 39% of Mega, including Fairfax Financial Holdings Ltd. and the company's founding family, have pledged support for the deal. Mattel said it would fund the purchase via a combination of new debt and cash on hand.

Mega is the maker of Bloks building toys, which the buyer said ranks it as the second-largest player in the $4 billion construction building set category. The company, which also has a large arts and crafts operation including licenses to use many popular preschool and elementary school characters, had estimated 2013 sales of $405 million.

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El Segundo, Calif.-based Mattel, perhaps best known as the maker of Hot Wheels cars and Barbie dolls, in a statement said that the deal would both push it deeper into new categories, and allow the buyer to distribute Mega brands across its global footprint.

"A key pillar of our global growth strategy is the strategic acquisition of brands that will both benefit from our scale and help extend our reach into new and growing categories," said Mattel chairman and CEO Bryan G. Stockton in a statement. "We look forward to helping Mega Brands accelerate its global growth, providing more choices for more children and their families."

Mega ranks among the top 15 toy companies globally in terms of sales, according to Mattel, and has about 1,700 employees in 17 countries. Mattel said that post-deal it intends to maintain Mega's manufacturing facilities in Canada and Tennessee, and keep Mega's headquarters in Montreal.

Marc Bertrand, Mega's CEO, in a statement said, "we are confident Mattel's scale and global platform spanning 150 markets - combined with the expertise of our people in the construction and arts & crafts categories - will create tremendous growth opportunities for our brands."

RBC Capital Markets is acting as financial adviser to Mattel, with Latham & Watkins LLP acting as legal adviser and McCarthy Tetrault LLP serving as Canadian counsel. Mega is being advised by Rothschild and Osler, Hoskin & Harcourt LLP.

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