(FORTUNE Magazine) – Not so long from now, in this very galaxy, Star Wars impresario George Lucas will make an announcement certain to rock the toy business. After months of anticipation, Lucas will grant toy licenses for the next trilogy of Star Wars movies, the first of which will be released in less than two years. At stake is billions of dollars of toy sales, stretching into the next decade. No wonder every major toymaker in the world has made the trek up to Lucas' 2,500-acre ranch near San Francisco.

The licenses for toys based on the existing Star Wars movies--Luke Skywalker action figures, Death Star play sets and such--are held by Hasbro and by Galoob Toys of San Francisco, the nation's second- and third-largest publicly traded toymakers, respectively, after Mattel. Getting in on the new films is important to Hasbro, but only about 6% of its $3.4 billion in expected 1997 sales comes from Star Wars toys. For Galoob, however, Lucas' decision is critical. The company will get about a third of its expected $360 million in 1997 revenues from Star Wars toys. Any change in the scope of its license for the new movies will obviously have, as they say on Wall Street, a significant material effect on the company. "Galoob's stock is the way to play the granting of the Star Wars licenses," says Gary Jacobson, a self-described "fun industry" analyst at Jefferies. No one knows what Lucas will do, but the thinking is that the billionaire dream-weaver will grant new licenses to both Hasbro and Galoob. The question is, how big a piece will Galoob get of the Star Wars pie?

The Star Wars toy license has an intriguing history. In 1977, Lucas granted Kenner the exclusive rights to produce Star Wars toys in perpetuity for $100,000 per year. Back then, of course, no one realized how valuable that right was, and for years Kenner made millions of dollars selling little plastic Princess Leias and R2-D2s. In 1991, Hasbro bought Kenner. But by then, sales of Star Wars toys were nonexistent, so a Hasbro accountant figured he could save the company $100,000 by not sending George Lucas a check. A year later a Lucas employee saw Galoob's product line at a trade show and asked the company whether it would be interested in making Star Wars toys. Galoob's management jumped at the chance, launched its own Star Wars line, and promoted it heavily. Hasbro struck back and convinced Lucas that it still wanted to make Star Wars toys after all, but Galoob had its foot in the door. This year Galoob will sell about $120 million worth of small-scale Star Wars toys; Hasbro will do about $200 million of larger pieces.

Sales this year are way up because of the incredibly successful reissue of the Star Wars movies. Interestingly, Galoob may deserve some of the credit. "I'm going to go out on a limb," says Jacobson. "I believe that Lucas never would have rereleased those movies if Galoob hadn't shown him that Star Wars was still popular by successfully promoting those toys. I think the Lucas people are grateful to Galoob." Which is why institutional investors like Morton Simpson of Bellmore Asset Management are betting Lucas will do well by Galoob. "I think sales of Star Wars toys could hit $1 billion in 1999," says Simpson, who owns 350,000 shares of Galoob stock. "That's about what Barbie does, or what Power Rangers did in their peak year." If Lucas gives Galoob the same license for the new movies as it has for the existing ones, Galoob's share could be worth some $350 million in revenues--close to Galoob's total expected sales for this year.

Of course, Lucas won't be giving these licenses away. Simpson figures the royalty will run north of 15%. It's also likely that Lucas will require an advance and a guarantee, which will run into the hundreds of millions of dollars. Or he may take his payment in the form of stock. "I know for a fact that every company that has talked to Lucas, including Mattel and Hasbro, has offered him some kind of equity," says one source. In the case of Galoob, some speculate Lucas may trade licensing rights for a large chunk of the company's common stock. "It all depends on whether Lucas wants to be associated with a publicly held toy company," says Simpson. Hasbro, Galoob, Mattel, and Lucas all declined to comment.

Meanwhile, after falling more than 50%, to $13, last winter because of weak sales in its Sky Dancer line, Galoob's stock has climbed back to $21 recently. Simpson is hoping that good news from Lucas will move the stock even more. From Galoob's standpoint at least, the force is definitely with George Lucas.

--Andrew E. Serwer