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Planet Money on Lego (and Mega Bloks)


txlaw
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Txlaw ,Good peace ,thanks...

In 2005-2007 Mega gained market share on the expense of Lego. The  bad purchase  of Rose Art stopped the momentum for MB. In boys construction category Mega is the second after Lego, however Lego is huge, I believe it is about 90% of  market share. Lego has brand recognition, economy of scale ect…in retail they are  indeed # 1.

FFH invested into MB  via debentures, common and warrants ,at  the present moment FFH has big peace of business and the  board seat .( and I keep thinking  that  FFH  should  just buy them all. what do you think?)

In seems to me that MB has been gaining back what they had lost. From my point of  view, valuation is attractive.

 

 

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Txlaw ,Good peace ,thanks...

In 2005-2007 Mega gained market share on the expense of Lego. The  bad purchase  of Rose Art stopped the momentum for MB. In boys construction category Mega is the second after Lego, however Lego is huge, I believe it is about 90% of  market share. Lego has brand recognition, economy of scale ect…in retail they are  indeed # 1.

FFH invested into MB  via debentures, common and warrants ,at  the present moment FFH has big peace of business and the  board seat .( and I keep thinking  that  FFH  should  just buy them all. what do you think?)

In seems to me that MB has been gaining back what they had lost. From my point of  view, valuation is attractive.

 

I have no idea on MB -- I've never done an analysis.  Would love to get more detail on why you think MB valuation is attractive right now.

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We do not own MB, however, we might initiate the  holdings warrants / common  in the future.

The reason I keep my eye on MB that FFH invested into …We  own FFH and it  is interesting  to know what Prem and Co.  buying and selling and what is the  rational.

It seems  that the strategy FFH used with MB is similar to Brick -which works very well for FFH and Francis Chou, in both cases turnaround plan,  issue of  debentures , warrants ,common to p/o debt.

In fact, MB has been  making big progress, the construction category performing very well, margin  is expending, expenses  had been reduced and well controlled. Approximate EBITDA estimate close to $55mil. I see huge gain in the store shelf. (Walmart, Target).

They  have new license  with Mattel, in particular  “Barbie construction toys for girls “, it is  very competitive product , my daughter confirmed that the Barbie-Mega Brands is  better than Lego-friends.

The Second segment of MB is a Stationery /Art category - sales are up, margin is improving and I believe this is the first year since they bought them,  MB has a positive cash flow from the segment. They  paid close to 400mil $USD in 2005 to buy Rose art ( please note that  today market cup of MB  around $180milCAD ) .the Interesting  fact is that they tried to sell the stationary  in 2008 – when time was bad  , but the price was low, so they kept it .  Idea of selling the segment today…? well, would certainly unlock the value. 

the interesting part that the balance sheet is better than it looks.

approx 12.2mil warrants outstanding are in the money ( the exercise price close to 10$)

when converted will be used to pay off debentures. I spoke with management- and they confirmed that.

On a negative side, business is a mediocre, in  highly completive industry, to compete  company needs to come up with new products and licenses.

they do not have a  strong brand recognition like  Craoyla in stationary and Lego in construction category thus  there is always a chance for an improvement…

Cheers!

 

 

 

 

 

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