RC2 Corporation (RCRC) signed a definitive acquisition agreement yesterday with Japan-based Tomy Company Ltd. The leading global toy and infant products company in Japan will acquire RC2 through an all-cash tender offer and second-step merger worth approximately U.S. $640 million.
Tomy plans to offer buying all outstanding shares of RC2 common stock for US$27.90 per share, through a U.S. subsidiary. The offer price is at a 30.9% premium to RC2’s average closing stock price over the three-month period ended March 9, 2011, and at a 27.2% premium over the closing price of its common stock as of that same date. The tender offer is scheduled to commence in 10 business days and is expected to close during the second quarter of 2011.
However, the completion of the deal is subject to regulatory as well as shareholders’ approvals and other customary closing conditions. Moreover, there will be a 30-day period during which RC2 can consider any other lucrative offer from a third party. Notably, 15 additional calendar days will be available for some cases. However, the possibility of a higher bid seems unlikely. Post acquisition, the brands of RC2 will be managed by Tomy’s leadership team.
Robert W. Baird & Co.is acting as the financial advisor to RC2 and and Reinhart Boerner Van Deuren s.c. is acting as its legal adviser. BofA Merrill Lynch is acting as exclusive financial adviser to Tomy, while Skadden, Arps, Slate, Meagher & Flom LLP and Nishimura & Asahi are acting as Tomy’s legal advisers with regard to the transaction.
RC2, which primarily caters to infant and toddler products,reported fourth quarter 2010 adjusted earnings of 49 cents per share, which came in below the Zacks Consensus Estimate of 55 cents but above 43 cents in the prior-year quarter.
We view the deal as strategically positive, given that it will expand RC2’s business in the faster growing Asian market. Moreover, the deal is in sync with the Tomy’s strategy to grow globally through a re-engineering process from 2009 to 2012. Apart from enjoying a leadership position in Japan, Tomy stands out to be among the top five traditional toy companies in the world. Going forward, we expect Tomy to benefit from the geographic diversification.
RC2 Corp.’s major competitors include Hasbro Inc. (HAS) and Mattel Inc. (MAT).
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