MONTREAL (AP) — Toy maker Mega Brands Inc. says it is considering a sale of its Rose Art stationery and crafts business, a move that could help the company significantly reduce its debt.
Mega Brands acquired the business in mid-2005 in a US$350 million deal that also included the Magnetix line of building toys and a puzzle business.
Rose Art's former owners announced Tuesday that they were interested in buying back the stationery and crafts business but said Mega Brands hadn't responded to their overtures.
On Wednesday, Mega Brands CEO Marc Bertrand issued a statement saying ''the sale of the company's stationery and activities business is being considered as a means of generating meaningful cash proceeds to reduce its existing debt.''
Mega Brands said it has also received ''several other unsolicited expressions of interest.''
Analysts have said $200 million would be a realistic price for the company and would take a big chunk out of Mega Brands' $321-million debt.
Analyst Benoit Caron of National Bank Financial says the price should reach $250 million to $300 million.
''It's certainly not a bad thing for them to rationalize their holdings,'' said Caron.
''With the American economy heading into recession, we don't see it as a bad idea to sell Rose Art to pay down debt. This divestiture gets rid of a big burden.''
The arts and crafts segment, primarily under the Rose Art brand, generated sales of about $200 million last year, producing pens and pencils, presentation boards and organizers, and activity sets.
''Our stationery and activities business has consistently delivered solid performance,'' Bertrand said.
''This is a strong business with solid market positions in North America and we believe it would be an attractive acquisition to both strategic and financial buyers.''
Caron said the investment in Rose Art might have paid off if Mega Brands could have paid more cash in the deal and avoided problems with the Magnetix line that came with Rose Art.
The Magnetix building set business was subject to several recalls and lawsuits from the families of injured children.
''Things are actually going well in the overall Rose Art brand,'' Caron said.
The announcement Wednesday came a day after the former owners of the Rose Art division said they are interested in buying back the business from Mega Brands.
Lawrence Rosen said he and his brother Jeffrey sent a letter last month to Mega Brands expressing their interest in buying back the arts, crafts and stationary division.
''We haven't received any information back from Feb. 20 when we contacted them and the board, so we thought we'd go public with it and see if that could get us some attention,'' Lawrence Rosen told The Canadian Press in an interview from New York.
Mega Brands cautioned that the expression of interest from the Rosens is being considered in the context of ongoing litigation between the company and the former owners.
When the Rosens sold the business in 2005, they said it was the ''best strategic option'' for the company to pursue its rapid growth. Lawrence Rosen had joined Mega Brands as part of the acquisition, but was fired in 2006.
On Tuesday, Rosen said he was disappointed with how he's heard the Rose Art division was being run.
''We thought it would be in the best interest in view of what we're hearing on the street, so we thought it would be worthy of placing an offer in case they're looking to sell,'' Lawrence Rosen said.
In December, Mega Brands unveiled a new magnetic toy and a corporate overhaul designed to restore its profitability and the faith of investors.
The toy company has also launched a two-year plan to improve its operations, realize efficiencies and recover lost margin and profitability.
It plans to realign most of its products under three super banners — Mega Bloks for all construction toys, Rose Art for creative products such as art, school, craft and stationary, and Board Dude for presentation and writing tools.
Ultimately, it hopes to generate $12 million in annual synergies and see its EBITDA increase from $83 million to between $100 million and $115 million by 2009.
Mega Brands manufactures toys and stationery and had revenues of US$552 million in 2006 as well as a profit of US$25.3 million for that year. The company employed about 3,000 people at the end of 2005.
Mega Brands shares closed up 51 cents to C$5.51 with a volume of 589,269 on the Toronto Stock Exchange.
