RealTime IT News

Barbie Stops the Bleeding

There are vicious rumors swirling on Wall Street that Barbie may be forced to put both her Dream House and Corvette up for auction on eBay following news that parent, Mattel Inc. , has finally sold its hemorrhaging subsidiary, The Learning Co., to L.A.-based investment firm Gores Technology Group for next to nothing. Mattel acquired the money-losing games software maker for a staggering $3.5 billion last year in what is largely considered today to be one of the worst high-profile acquisition blunders in history.

Under the terms of the sweetheart deal, so-called corporate turnaround-aficionado Gores Technology won't pay one penny up front in exchange for the struggling software firm, but will instead pay Mattel a portion of future earnings should The Learning Co. ever return to profitability or be sold off in the future. Mattel also plans to take an after-tax loss of $430 million related to the deal and layoff more than 350 employees, or about 10% of its workforce. It's a bitter pill to swallow, but the toy maker finally cuts loose the constant cash-drain that some estimated to be costing the company up to $1 million per day.

That's little consolation for investors that have seen Mattel's shares fall to within a stone's throw of its 52-week low. The Learning Co. land-grab was originally touted by Mattel executives as an exciting move into the digital interactive entertainment industry. The sibling software developer publishes a bevy of semi-popular gaming and educational titles that include Carmen Sandiego, Myst, PrintShop, and The Oregon Trail. But without question, Mattel grossly overpaid for a poorly run upstart that already had an openly suspect reputation for questionable accounting practices. The failure to perform badly-needed due diligence ultimately came home to roost on Mattel's own bottom line and led to a spate of shareholder lawsuits as a result.

Then-CEO Jill Barad was instrumental in brokering the doomsday deal, and it ended up costing Barad her job earlier this year after The Learning Co.'s stench began lingering on Mattel's underwhelming stock performance. The company's president and chief financial officer were also handed pink slips, and Robert Eckert took over the reigns as top banana to turn things around. The sale of The Learning Co. should help stop the bleeding, but without receiving a dime up front in return for the once-prized holding, it certainly won't help ease the sting for Mattel or its investors.

Other suitors did materialize, bidding pennies on the dollar for The Learning Co., including Havas Interactive, the U.S.-based subsidiary of French media giant Vivendi. Rumors had the offer in the neighborhood of $200 to $400 million, but potential regulatory roadblocks in both the U.S. and abroad made the deal less favorable. In the end, The Learning Co.'s limited potential fell victim to the fickle nature of young consumers who were quick to embrace the Internet medium over plain vanilla CD-ROMs. And in hindsight, Mattel is clearly best suited to return to its core business roots selling Barbie Dolls and Tickle Me Elmo.

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