When Companies Overpay—Mattel Acquires The Learning Company
1. Why was Mattel interested in diversification?
Mattel wanted to take advantage of the growth of the children’s software market, which was about 20
percent per year and about four times the growth rate of the regular toy market.
2. What alternatives to acquisition could Mattel have considered? Discuss the pros and cons of
each alternative?
One alternative would be developing Mattel’s software division internally, which was small but growing.
They could have also created a joint venture with a leading software company, where both parties would
contribute assets. Another option would be licensing specific software products from other companies or
taking a minority position in a software company that could develop software for Mattel. The riskiest
option would be expanding their own software division, because they don’t have the technical knowledge,
and this might put them behind their competition in the fast-growing market for interactive children toys.
A joint venture might not give Mattel the control that they want, and it might be difficult to manage. The
same goes for licensing and minority investments, they’ll have limited control and that might make it
difficult to manage.
3. How might the internet affect the toy industry? What potential conflicts with customers might be
created?
The internet offers a new distribution channel for Mattel, that could potentially be very successful. They
would be less dependent on retailers and could compete better within the industry. Exploiting the new
technology put Mattel in direct competition with their customers, because they are already distributing
online.
4. What are the primary barriers to entering the toy industry?
The primary barriers to entry are the well-established distribution channels of the big manufacturers,
because of the long-standing relationships they’ve build with retail giants such as Wal–Mart and Toys “R”