Following current trends of corporate consolidation — think airlines and media companies — Hasbro's offer to Mattel shouldn't seem like too much of a surprise. However, many people were taken aback by the approach from three days ago.
This surprise is apparent in the fact that Mattel stock jumped 20% while Hasbro jumped 8% — investors are pretty happy that this deal is going down. But why might this be?
The Wall Street Journal first reported on Nov. 10 that a potential deal is in the works. This could be due to the fact that Mattel's shares have dropped 47% this year while Hasbro's stock prices have increased 18%.
If the two companies should combine, their shared market price would be around $16 billion. With this strong of a company value, there are many benefits that come with the impending consolidation.
Competition with electronics and tech
Customers walk towards a branch of the toy store Toys R Us on September 19, 2017 in Luton, England. Getty Images
This report is following the fact that Toys'R'Us has recently been bankrupted — as of now, the company owes Mattel at least $135 million which contributed to its drop in shares.
Traditional toys don't have that much appeal in the age of tablets and VR. Hasbro could be attempting to get ahead of the curve of electronics and technology by consolidating.
A worker prepares packages for delivery at an Amazon warehouse on September 4, 2014 in Brieselang, Germany.Getty Images
Another electronic aspect of competition may be from Amazon.com, Inc — Amazon is so popular in the current market, especially with their Prime option. Perhaps Hasbro will also expand more into e-commerce too.
Competition with other companies
A worker arranges a shelf of Hasbro Inc. Nerf Blaster products at a Target Corp. location in Emeryville, California, U.S., on Thursday, July 20, 2017.Getty Images
Traditionally, Hasbro has made over 80 brands of toys such as My Little Pony, Nerf, Transformers, Play-Doh, Littlest Pet Shop and Monopoly, with rights to "Star Wars." If you were an '80's kid, you've probably played with these toys.
Mattel has around 20 brands such as Barbie, Hot Wheels, Fisher-Price and the coveted American Girl dolls — also brand deals with Disney, giving them an edge over the animated market.
With this takeover, Hasbro can focus on extending its influence rather than getting ahead of their competition.
Lego enthusiasts attend the Bricklive at the Scottish Exhibition and Conference Center on July 20, 2017 in Glasgow, Scotland.Getty Images
Hasbro also probably wants more shelf space — currently, Lego controls most of the market's shelf space. If the deal goes through, Hasbro can cut out one of its major competitors for this exclusive real estate.
Why this could be disastrous
Going back to what this really is — corporate consolidation — could be dangerous to small businesses. Big companies have been demolishing small businesses — a prime example being Luxottica separating from Oakley sunglasses due to pricing. Oakley's stock prices thus collapsed.
Corporate consolidation also tricks you into thinking that small businesses are independent when they aren't really — especially with companies such as Tom's of Maine and Burt's Bees. Instead, they're both owned by large corporations.
Hasbro and Mattel's merging could thus continue this pattern of big corporations crushing small businesses.
However, this deal might not even go through — Hasbro has approached Lions Gate Entertainment, DreamWorks Animation SKG and Mattel twice before, with no success.
- Hasbro reportedly offered to buy Mattel - The Verge ›
- Mattel-Hasbro Merger Getting Improbable - Hasbro, Inc. (NASDAQ ... ›
- Hasbro Said to Make Bid for Toy Rival Mattel - The New York Times ›
- Mattel Surges on Report That Hasbro Discussed Acquisition ... ›
- Hasbro Sets Its Sights on Mattel - WSJ ›
- Hasbro Official Website | Hasbro Toys ›
- Hasbro - Wikipedia ›
- Hasbro (@HasbroNews) | Twitter ›
- Hasbro makes an offer to buy rival Mattel - MarketWatch ›
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.