Mega Brands founding family to receive $74 million if Mattel deal approved

MONTREAL – Mega Brands’ founding family stands to receive more than $74 million if the toy company’s sale to global giant Mattel is approved by shareholders at the end of the month, according to a regulatory filing.

Chairman Victor Bertrand, who started the company nearly 50 years ago, would receive $41 million for his 2.3 million shares. Chief executive Marc Bertrand would collect $18.4 million, while chief innovation officer Vic Bertrand Jr. would get $14.9 million.

The Montreal-based company’s shareholders will vote on April 23 on a friendly takeover offer from Mattel that is expected to close around June, says the 206-page proxy circular.

Mattel is offering C$17.75 cash per share and 39 cents per warrant, which represents a total enterprise value of US$460 million, including the net debt. It has the support of shareholders with 39 per cent of Mega Brands (TSX:MB) stock, including the Bertrands and Fairfax Financial (TSX:FFH), which invested in the company as it struggled to survive disastrous recalls of one of its magnetic toys.

Mattel, the world’s largest toymaker, is expected to extend its licences such as Hot Wheels to Mega construction and arts products, two of the fastest growing toy segments.

The transaction announced Feb. 28, would mark the sale of a publicly traded Canadian toy company, which was founded in 1967 and grew to become the leading maker of pre-school construction toys.

Approval is required from two-thirds of Mega Brands shareholders and a majority of shareholders excluding Marc Bertrand and Vic Bertrand Jr.

The brothers would split $1.74 million for the shares and warrants they each own, but the lion’s share of their payments would come from change of control payments under their employment contracts and vested stock options, restricted and deferred stocks. Agreements with Mattel will also pay each person to consult for a year and not compete with the new owners for three years.

Marc’s payout includes $1 million from shares and warrants, $6.6 million from various vested stocks, $6.8 million from his employment contract, and $1.1 million for consulting and US$2.5 million in non-competition, non-solicitation.

Vic would get $691,000 for his shares and warrants, $4.5 million in vested stocks, $5.8 million for his employment contract, $1.1 million for consulting and US$2.5 million for non-competition obligations.

In total, 11 senior executives and board members would share $43.1 million for shares and warrants and $15.1 million for stock options, RSUs and DSUs.

Mega Brands two largest shareholders – Fairfax Financial Holdings and Invesco Trimark which together control 38.5 per cent of the company’s shares – would split $161.5 million. Fairfax would receive nearly $116 million for its 6.5 million shares while Trimark’s take for its 2.58 million shares would be $45.7 million.

Marc Bertrand has said the deal flowed from its licensing arrangement with Mattel that began about a year ago.

Initial discussions about a transaction began after the brothers were approached by senior Mattel managers at a licensing trade show last June. A preliminary offer in the range of $17 to $20 per share was submitted July 5, subject to due diligence.

Mattel told Mega Brands on Jan. 8 that it would be prepared to offer $18 per share. After considering a price of $18.25 during negotiations, Mattel settled on $17.50 because the 2013 results including the key fourth quarter, and the projected January results “were not as strong as Mattel had anticipated.”

Mattel ultimately increases its offer to $17.75 during late negotiations.

The offer represented a 36 per cent premium to the closing trading price a day before the deal was announced.

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