Mega Brands Wins $72M Settlement

MONTREAL (CP) -- Mega Brands Inc. has won a $72-million settlement related to its ill-fated acquisition of the Magnetix line of magnetic toys, providing the toymaker and its investors with some good news for a change.

Under the settlement with Lawrence, Jeffrey and Sydney Rosen, who sold their Rose Art business and its Magnetix product line to the Montreal-based maker of Mega Bloks and other toys, Mega Brands will receive $17.2 million cash.

The Rosens will also drop claims totalling $54.8 million against the company.

Mega Brands says the settlement deals with all outstanding litigation between it and the Rosens.

The Rosens filed suit in 2006 claiming additional payments and compensation related to their sale of Rose Art. Mega Brands countersued.

Mega Brands claimed the Rosens withheld information about serious defects in the Magnetix product line, which had to be recalled and redesigned after it was learned that the magnets could come loose and be swallowed by children.

"This is great news for our company. The settlement validates our long-standing view that serious defects in Magnetix were not disclosed to Mega Brands before it acquired Rose Art," Mega Brands CEO Marc Bertrand said in a statement.

"A settlement of this magnitude mid-trial speaks volumes to the merits of our case."

The company's shares soared 26 cents or more than 50 per cent in early trading at the Toronto Stock Exchange, rising to 74 cents.

However, Mega Brands shares remain a shadow of what they were once worth.

For much of the decade, the shares were worth more than $15 a share but plunged below that about two years ago after the company issued weak quarterly sales and high costs associated with the Magnetix business.

The company was forced to recall more than seven million sets after at least one death and four injuries were linked to the product..