Toymaker Jakks Pacific (JAKK.O) said it will need time to respond to Oaktree Capital Management's $670 million buyout offer, though most analysts believe a deal will be reached at a higher price than the current offer.
Late Tuesday, Oaktree sent a letter to Jakks outlining an offer to buy the company for $20 a share in cash, saying it was going public with the bid since the board failed to engage in meaningful discussions after the parties first began talking in March.
Jakks shares fluctuated wildly on Wednesday between trading above the offer price at $20.37 and a low of $19.50, pointing to investor uncertainty on whether a higher bid will emerge.
In its letter, Oaktree, which threatened to take its offer directly to shareholders, said it was willing to raise its price, if the company could demonstrate further value during the due diligence process.
Needham & Co analyst Sean McGowan felt the price offered by Oaktree was probably "more than fair" given Jakks' earnings volatility and lack of intellectual property, but said Oaktree will raise the offer.
"If you're on the outside looking in and you haven't yet got a chance to do all your due diligence you're not going to put necessarily your highest and best offer forward immediately," McGowan, who thinks Jakks could fetch around $22 a share, told Reuters.
The analyst said the Oaktree team was being advised by former Jakks executive Jay Foreman, which he said should improve their chances of success, given that Jakks licenses most of its toy brands.
"They need to have a bidder who can be sure of retaining the key licenses. So, it can't just be somebody else that is unknown to the industry or has no proven track record in managing brands," McGowan said.
Malibu, California-based Jakks makes products under brands such as Pokemon, Hello Kitty and The Smurfs.
Wedbush Securities analyst Edward Woo thinks the offer undervalues Jakks.
"This company earned $2 a share from 2005 to 2008 and if they can get back to that level ... then you're looking at a stock that easily should be trading at the mid-20s all by itself without an offer," Woo, who thinks Oaktree will have to pay around $25 a share, said.
And while the Wedbush analyst does not believe a competing bidder will emerge, he does expect the bid for Jakks -- the second major acquisition in the U.S. toy industry this year -- will increase speculation that others in the sector like LeapFrog Enterprises LF.N will be acquired.
Jakks Pacific shares were up 24 percent at $19.77 on Wednesday on Nasdaq. Rival LeapFrog's shares were up nearly 6 percent at $3.35 on the New York Stock Exchange. Shares of larger rival Mattel Inc (MAT.O) were trading almost flat while Hasbro Inc (HAS.O) shares were up about 2 percent.
(Reporting by Abhishek Takle in Bangalore; Editing by Sriraj Kalluvila)