Milton Bradley purchase, hot toys put Pawtucket firm near industry's top

Written by Hamilton Allen for the Providence Journal

PAWTUCKET - In September, it bought a company that had been losing money. Some observers said the deal was no bargain.

In October, its new president - on the job less than three weeks - resigned.

In November, it announced plans to shut a major plant and move its operations to other states; at least 450 people would lose their jobs.

But don't get out the handkerchiefs. This is Hasbro Bradley Inc., which probably has done more to put Pawtucket on the business map than any other company since Samuel Slater built his mill.

It was in September that Hasbro, a 48-year-old company with 2,000 employees, acquired Milton Bradley, a 124-year old game and puzzle maker with 4,000 employees and operations in 14 foreign countries.

The acquisition, merging two familiar names in the toy and game trade, created one of the largest toy and game manufacturers in the nation. It may soon be the largest.

"If Hasbro isn't number one, they'll be a very close second I'll tell you," said Stephen F. Smith, editor in chief of Toy & Hobby World, the industry's most widely circulated trade publication. Just how large that will be will be decided early next year when annual sales figures come out.

Stephen Hassenfeld, Hasbro's chairman, says sales are now running at the rate of $875 million annually. For 1984, however, total sales will be less because Milton Bradley's contributions are limited to the last six months of 1984.

Even so, the numbers reflect an increase of major proportions: Sales of $138 million two years ago, $730 million this year; net income of $7 million two years ago, $48 million this year.

That assures Hasbro a berth in the Fortune 500 - the annual listing of the 500 largest US industrial corporations, based on sales. The only Rhode Island company now on that list is Textron, the Providence-based conglomerate. Nortek, a diversified manufacturer now moving from Cranston to Providence, is also likely to win a place on the list. It expects sales of more than $500 million for 1984.

Hasbro's growth in business means growth in the managerial, executive and professional staff. The company added about 200 to its Pawtucket staff this year and will probably add another 200 in 1985, Hassenfeld said.

In a state as small as Rhode Island, that can have a significant ripple effect on real estate, grocery stores and other consumer goods and services.

Some of Hasbro's growth results from the acquisition. A number of people coming to the Pawtucket area to live are moving from the former Milton Bradley headquarters in Springfield, Mass., and from the former Chicago headquarters of Playskool, a Milton Bradley subsidiary.

But growth at the home office in Pawtucket also reflects internal growth. Before the merger on September 10th, Hasbro's administrative and professional staff in Rhode Island had increased by 105 this year, Hassenfeld said.

Hasbro is now working to accommodate the staff increase. Most of the people new to the home office will work at headquarters, thus displacing manufacturing space there.

Manufacturing is to move to a Hasbro building on Delta Drive, off Armistice Boulevard in Pawtucket. The building is now used for warehouse and distribution functions, which will be moved to West Warwick where Hasbro has leased more than half (260,000 square feet) of the BIF building off Route 95.

Meanwhile, the former Milton Bradley headquarters in Springfield, Mass., is for sale.

Hassenfeld, 42, grandson of one of the company's founding brothers, occupies an office that is unusually spare - no pictures on the wall, no drapes at the windows, little furniture. Magazines sit in stacks by the dozen on the floor and a large conference table.

He's running an hour late as he summarizes the benefits he expects from the Milton Bradley purchase.

• The opportunity to be more significant in the pre-school market. The company will take the best of Hasbro's traditional preschool line and the best of Playskool, discarding the rest. Playskool will probably be the name for the combined line.
  
• The opportunity to be more significant in the global market. Milton Bradley's foreign manufacturing and sales had given the company 37 percent of total sales. Hasbro, which only had plants in Canada and England, can now sell toys through the Milton Bradley network.
  
• A broader project line. If Hasbro can get several popular toys on the store shelves, it can continue to reduce dependence on one or two high-volume toys. Hassenfeld says he seeks diversity the same way an investor seeks to balance his securities portfolio. Too many toy and game companies, he says, rely on a single product and then aren't able to resist any kind of a down draft in sales of those products.

He cites the G.I.Joe toy line, the company's most popular product, as an example.

"Joe," as he's known at headquarters, contributed 40 percent of total sales two years ago. Hassenfeld confesses that while he loved Joe's success, Hasbro's dependence on the toy "made me nervous."

This year, Joe will capture $125 million in sales - but that's only 17 percent of total estimated sales.

The merger is now more than three months old, but the effort of bringing two large companies together has had its rough spots.

There was the matter of James J. Shea Jr, son of a Milton Bradley chairman. Shea, at 58, was himself chairman, president and chief executive officer of Milton Bradley at the time of the acquisition.

On September 10th, with the merger completed, he was named president and chief operating officer of Hasbro Bradley.

Less than three weeks later, Shea announced his resignation. The slot was immediately filled by Alan G. Hassenfeld, 36, younger brother of the chairman, who had been executive vice president.

"I would have liked it to have worked out differently," Stephen Hassenfeld said. "It didn't, and it surprised probably no one; it didn't surprise anyone in the industry."

Shea, he said, is a man "whose style is quite different from mine. I tend to run things on a much more participatory basis, but that doesn't mean that his style was wrong. Obviously, he is a very talented individual. But I can understand the problems somebody has in going from a chief executive officer of a big company like that to a number two position.

"After all, if somebody came along and took away my opportunity to be the lead person in interfacing with Wall Street, to be the one responsible for mergers and acquisitions, to be the interface with the board of directors, well, that's taking away a big piece of everything that you've trained for.

"All that was defined up front. YOu can't have two people doing the same work. And as part of the acquisition, it was defined that I would do all those things. Nonetheless, it left him all of a sudden without things he was used to doing."

If anything triggered the resignation, it apparently was a dispute over Playskool. It was Shea - not Hassenfeld - who first wanted to close the Playskool plant in Chicago. Shea had made this known last spring around the time plans for the merger were being announced. But Hassenfeld wanted the plant to remain open, at least until after the merger, to see if it could be saved.

Hassenfeld acknowledges that this was a source of "some discomfort" between the two men "because it was probably the first time in many, many years that he had really had to ask somebody."

There is an irony in the Playskool episode because, as it turned out, Hassenfeld changed his mind and agreed with Shea. He cites two factors entering into the decision to close the plant; Poor construction of one part of the plant and the plant's location in an area that potential employees were reluctant to enter.

The merger has meant trimming the executive staff from Milton Bradley, but the only other resignation was that of George Volanakis, president of Playskool, Hassenfeld said.

Playskool manufacturing will be shifter in a few months to a plant of Milton Bradley's in East Longmeadow, Mass. Playskool marketing, engineering, research and development will move to Pawtucket.

If the merger has hit a pothole or two, no one on Wall Street seems to be noticing.

"There can be little doubt that the acquisition of Milton Bradley has created the most profitable entrant in the toy industry - one that is running neck and neck for sales leadership," said stock analyst David S. Leibowitz, senior vice president of American Securities Corp. of New York City.

A key to the merger, he believes, is that the two complement each other. Milton Bradley's strength is in puzzles and board games, an area where Hasbro is relatively weak; Milton Bradley is a major player in Europe; foreign sales haven't been a major activity for Hasbro.

This could mean even greater earnings for a company who net income has already soared, in Liebowitz's view.

"Customers have been making commitments for spring, summer and autumn 1985 deliveries since September, and the new line has been very well received," he explained. That means, he said, that "1985 could be another pacesetter."

But Hasbro has strengths in popular basic toys that could fill any toy box; Mr. Potato Head, Lite Brite, Raggedy Ann and Andy, Peanuts and Sesame Street characters are among them.

Found on Top 10 toy characters for 1984 are not only the popular G.I.Joe series but My Little Pony, a miniature pony in pastel colors with long silky mane and tail for combing and braiding, and Glow-Bug, a stuffed bug that lights up.

Casting an unusually cheery glow on Hasbro's receivables are Transformers, a new entry of miniature robots that can be twisted and turned into toy cars, planes - even toy cassette recorders.

Paul Rothman, analyst and vice president of research at the Advest Inc. securities firm in Hartford, sees a possibility for crossbreeding between the strongest lines of the two companies.

"You could take some of the hot things in the Hasbro line and turn them into games and puzzles," for Milton Bradley, Rothman said. "For example, if Mr. Potato Head is so popular, why not a Mr. Potato Head game?"

The acclaim is coming fast these days, but last spring when the proposed merger was announced there was suspicion that Hasbro was paying - at $360 million in cash and stock - too much for Milton Bradley.

Milton Bradley's 1983 sales were off 2.5 percent from the previous year, operating earnings were down 44 percent, and the company had taken a $30 million write off on its consumer electronics subsidiary. The bottom line was a 1983 net loss of $19 million.

The Hasbro offer was "an early Christmas for Milton Bradley shareholders," Leibowitz said at the time.

Harry E. Wells 3rd, research director at the Adams, Harkness & Hill securities firm in Boston, observed that Hasbro's offer of $50 a share was 2.2 times Milton Bradley's book value of $21 - $22 a share.

"A generous evaluation, to say the least," Wells commented then.

Today, Wells is unabashed in his enthusiasm for the merger, crediting Hassenfeld for having the "cash, stock and imagination" to go through with it.

Wells doesn't consider Shea's resignation very interesting. This merger, he said, "has probably gone smoother than anyone would have dreamed."

Other sources agree that the Shea resignation was inevitable. Besides being accustomed to being the top man, he had "a potful of money," as one analyst phrased it, from his sale of Milton Bradley stock to Hasbro.

"In his place, what would you have done? It was preordained that he would quit," commented another observer.

Noted Stephen Smith, the magazine editor, "People who fit in with the new management structure stayed; those who couldn't left. Hasbro definitely calls the tune, and anyone who can't fit in with their management style would decide to leave."

He believes the future of the merged entity can be predicted from the past successes of each. "That means good traditional toys - not electronics. Everything else works off of that; licensing their toys to other toy manufacturers; basing television stories on their toy characters.

"It's like a pitcher with a fast ball," Smith added. "If you have a fast ball, then you can go to a curve, a slider, a change of pace. They have the fast ball and it's the basic toy business."

Editor's Note: This newspaper article was obtained through Linden High School's micro-fiche film library during my senior year in 1995. Linden High School is located in Linden, Mi. See ... it pays to save all that stuff!!!