Hasbro Adds Galoob to Its Toy Chest

In a deal that will bring the Star Wars toy franchise under one roof but spells the end of independence for the Bay Area's largest toy company, industry giant Hasbro Inc. said yesterday that it will buy Galoob Toys of South San Francisco for $220 million.

Hasbro, the nation's second-largest toy company after Mattel, owns well-known brands such as Playskool, Kenner, Tonka, Milton Bradley and Parker Brothers.

Galoob, which ranks a distant third among American toymakers, is best known for its line of tiny MicroMachines vehicles, Pound Puppies and, more recently, Spice Dolls toys.

Hasbro said it likely will consolidate some operations, resulting in possible layoffs. Galoob employs about 216 people, half of them in the Bay Area.

Hasbro's main interest in Galoob probably was the latter's license to sell small- scale Star Wars vehicles, figures and playsets.

Ironically, Hasbro had the first license to make toys based on the original "Star Wars" and its sequels. But Hasbro let the license lapse in 1991, figuring that the phenomenon had run its course.

Galoob later stepped in and revived the Star Wars toy franchise, which spurred renewed interest by Hasbro.

Last year, with anticipation starting to build for the upcoming Star Wars "prequel" trilogy, Hasbro, Galoob and Mattel engaged in a high-stakes bidding war for rights to make toys based on the three new movies.

Lucasfilm Ltd., the San Rafael producer of the Star Wars franchise, sold the rights for small toys to Galoob and for other toys, including action figures and games, to Hasbro.

Galoob paid Lucasfilm warrants for about 20 percent of Galoob's stock and a promise to pay $140 million against future royalties as the new films are released.

The first of those is scheduled for theatrical release in May 1999.

Galoob had a strong year in 1996, thanks to Lucasfilm's theatrical rerelease of the three original Star Wars films.

But in 1997, without the help of "Star Wars" in theaters, Galoob lost $2.7 million on sales of $240 million.

And in the first half of this year, things got even worse and Galoob lost $5.1 million on revenues of $70.3 million.

Galoob stock, which hit almost $35 a share in late 1996, sank as low as $6.63 this year.

It closed yesterday at $11.44, up $3.44 -- a gain of 43 percent -- on the news of the deal. Hasbro has offered $12 for each share of Galoob stock. Hasbro stock closed at $30, down $1.

Hasbro, which is based in Pawtucket, R.I., and had sales of $3.2 billion last year, said it had started mulling an offer for Galoob earlier this year and reached an agreement with the company Sunday night.

"Galoob is a solid company," said Wayne Charness, senior vice president of corporate communications for Hasbro. "We will look to companies we think we can take to the next level, and Galoob is one of them."

Although Galoob officials could not be reached for comment yesterday afternoon, President and CEO Mark Goldman said in a press release, "We are excited about joining Hasbro. Hasbro's global reach and resources will enormously expand the potential of Galoob's brands, especially 'Star Wars' and Micro Machines."

Barbara Frankel and Lewis Galoob founded the company in 1954 as an import business.

When Lewis Galoob died in 1971, his 21-year-old son, David Galoob, became president. He led the company's tremendous growth, piloting such original lines as Baby Talk, a talking doll, and MicroMachines miniature cars.

The company went public in 1984, and David Galoob became chairman and CEO in 1988. But even as Galoob Toys grew, it struggled to become profitable. David Galoob stepped aside in 1991, paving the way for Goldman to run the company.

David Galoob could not be reached for comment yesterday. But his sister, Linda Galoob Schneidman, 51, of San Francisco, said the acquisition of the company was sad but probably inevitable.

"There's not going to be any toy companies left," Schneidman said. "When we were in the business, there were a lot of independent, privately owned toy companies. They were all bought out by either Hasbro or Mattel. It's a very different business now."

Analyst John Taylor, who follows the toy industry for Arcadia Investment Corp. in Portland, Ore., agreed. "Companies like Hasbro and Mattel spend more in advertising than Galoob generates in revenue," Taylor said.

He said the deal makes sense for Hasbro.

The company now can consolidate the Star Wars licenses, extend Galoob's domestic strength with Hasbro's worldwide reach and make serious inroads into Mattel's dominance in small toy cars.

"It works for me," Taylor said.

Lucasfilm officials declined to comment, issuing only a one-sentence statement congratulating the companies on the deal.

Taylor, the analyst, said he believes that Lucasfilm will approve the transfer of the Star Wars license from Galoob to Hasbro.

The deal should close later this year if it gets approved by the federal government and shareholders of both companies.