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Mattel to sell Learning Co.
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September 29, 2000: 2:43 p.m. ET
Toy maker to take $430M loss on sale; cuts jobs and slashes dividend
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NEW YORK (CNNfn) - Hoping to remake itself after one of the most disastrous corporate takeovers in recent memory, Mattel Inc. agreed Friday to unload its beleaguered Learning Co. unit to an investor group for virtually nothing -- just 16 months after paying $3.5 billion for the educational software maker.
The El Segundo, Calif.-based maker of Barbie dolls and Matchbox cars also said it is cutting 350 jobs at its corporate headquarters, or roughly 10 percent of the workforce there, and will slash its dividend 86 percent in a bid to save $130 million a year. Mattel said the measures are designed to help realign its finances.
The Learning Co. sale comes just seven months after Mattel's board of directors ousted Chairman and Chief Executive Officer Jill Barad, who was widely blamed by investors and board members for pursuing the acquisition. Barad touted the Learning Co. deal as a way help Mattel to expand beyond its traditional toy business, but the purchase ended up costing the company hundreds of millions of dollars in losses.
 "Today is a major step in cleaning up the past," Robert Eckert, Mattel's chairman and CEO, told reporters and analysts Friday. "This is a plan that will enable us to leverage our core brands and increase cash flow. I still believe the basic foundation of this enterprise -- our core brands -- is sound and has the opportunity to be as successful as ever."
Learning Co. is being sold to a subsidiary of privately held Gores Technology Group, a technology acquisition and management firm. In exchange, Mattel no longer will be held responsible for funding the maker of educational programs such as "Where in the World is Carmen Sandiego?" and "Reader Rabbit."
 Eckert said Mattel received no upfront cash consideration as part of the agreement, but was guaranteed a portion of Learning Co.'s future proceeds, either through future profits or the resale of the company.
"Obviously it was our belief that ... this company was more valuable in the future than it is today," Eckert said. He said Mattel still intends to "participate in the Learning Co. brand."
The deal, which still requires government approval, is expected to result in an after-tax loss of $430 million, primarily related to a writedown of Learning Co.'s net book value.
"The key from our standpoint is to stop the cash drain," Eckert said. "We are investing between a half-million and a million dollars every day in the Learning Co. We also wanted to participate in future value."
 The Learning Co. acquisition turned out to be a nightmare for the largest U.S. toy maker -- costing Mattel $105 million in losses in the year-ago third quarter and another $183 million loss during the fourth quarter.
Barad was let go in February, but shareholder protests grew even louder the following month when Mattel disclosed it shelled out $50 million in severance packages to departed executives, a large portion of which was rumored to have gone to Barad.
The company also received a boost in February, when it reached a toy licensing agreement for the title character in the Harry Potter children's books and for characters from the film based on the series' first book that is being made by Warner Bros. Pictures, a unit of CNNfn corporate parent Time Warner (TWX: Research, Estimates).
But Mattel's stock price has never recovered, wallowing at levels nearly 70 percent below where it stood when Barad took the helm. In afternoon trading Friday, the stock slipped 44 cents to $11.19, as many investors were unimpressed by the restructuring announcement.
But the decision to shed Learning Co. is a good long-term move, said Marina Jacobson, entertainment analyst at Bear Stearns. However, she said, the
company still needs to improve its management and focus. (WAV454K) (AIF454K)
"We like Mattel," she said. The company "is making some tough decisions, but I think it's going to benefit the shareholders long term."
In addition to the sale and job cuts, Eckert said Mattel plans to examine and possibly discontinue some of its many products lines. He provided no further details.
Dividend also cut
Mattel (MAT: Research, Estimates) will cut its dividend to an annual payment of 5 cents from a quarterly payment of 9 cents, saving the company an estimated $130 million a year.
"We are returning the dividend to a ratio that is appropriate for the company," Eckert said. "Mattel is not facing a liquidity issue. Reducing the dividend will give us more capital flexibility going forward, which will ... lead to a increased shareholder value."
Mattel expects the initiatives announced Friday to result in savings of $200 million during the next three years. The company intends to take $250 million in restructuring charges during the next two-and-a-half years related to the initiatives, including a $100 million charge during the 2000 third quarter, which ends Saturday. 
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