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4 Analysis Although there is a huge amount literature on Mergers and Acquisitions (M&A) 6 , we will approach the analysis of the Mattel-Radica deal from a game-theoretic perspective using Gans and Stern (2000) model. We recognize that a model is an abstract representation of reality so it is di¢ cult to …nd a perfect match for a given model in the real world; however, recognizing the limitation of this approach, we think Gans and Stern framework is useful to take into account a di¤erent perspective in a M&A process, that is the use of technology and knowledge as a bargaining tool (Aghion and Tirole, 1994). We contribute by adding this new dimension to the M&A literature, analyzing this speci…c case 7 . 4.1 Players and timing The players of the Mattel-Radica acquisition game are of course Mattel and Radica. Mattel, although it is not strictly speaking a monopoly, has enough market power and leadership in the worldwide toy industry, that it could be consider as player M in Gans and Stern model. Also, and without much controversy, Radica could be regarded as player E, the relatively small …rm but competent in generating technological innovations. In our context, Radica is not working to develop a speci…c innovation but helping to develop the electronic toy industry altogether. As it was shown above, electronic games are growing much faster than any other segment in the industry, so in the toy industry, as in the model, there is a sense of a competitive “race”. In the speci…c case of the model, the “race”is to be the …rst to develop the innovation; in our case, the “race”is to gain market share in a growing segment of the toy industry. If Mattel, with all of its market power, were the leader of the electronic toy segment, there would 6 See Grimblat and Titman (2002) for a summary. 7 From the theory perspective a speci…c case could serve as a “conceptual test”of a speci…c theory (Yin, 2003). 12
not be much chance for Radica to compete pro…tably and probably it would try to go into some very speci…c niche of the market; this is similar, in the context of Gans and Stern analysis, as when M …rst developed the innovation and the game ended. However, the interesting underpinnings of the Gans and Stern model is when E developed the innovation …rst and threatened M to enter the market and directly compete with it; in the Mattel-Radica situation, Radica is actually one of the important …rms serving this growing segment of the toy industry and, as is it was shown above, Mattel’s growth rate had been deteriorating when compared with its rivals. This could serve as evidence that Radica, as it was E in Gans and Stern model, is a real threat for Mattel. As in the formal model, Radica has two options: 1) to directly compete with Mattel for this growing segment of the market, or 2) to negotiate with Mattel. This negotiation could be geared to sell a license for Mattel to use Radica’s products or to sell the whole …rm to Mattel. On the other hand, Mattel also has two options: 1) intensify its investments on R&D and try to eventually gain market share and also become a leader in the electronic game segment, or 2) negotiate with Radica a license agreement or to acquire Radica altogether. Table 5 shows the intensity in R&D, which is the total R&D expenditures divided by net sales for the years 2004 and 2005 (before the acquisition). Insert Table 5 around here Interestingly both …rms had approximately the same intensity in R&D before the acquisition. Actually, Mattel had increased its R&D intensity from 3.36 to 3.51 from 2004 to 2005; on the other hand, Radica went from having a R&D intensity of 3.37 in 2004 to having a R&D intensity of 3.02 in 2005. Although many factors not considered here could be related to this relative movement of R&D intensity of these two …rms (e.g. not all Mattel’s R&D expenditures go to developing electronic games), it is clear that both …rms are active players in terms of R&D. For example, 13
Page 3 and 4: Game-Theoretic Analysis of the Matt
Page 5 and 6: The tension of this game is the fol
Page 7 and 8: license fee to allow E to use the i
Page 9 and 10: M to acquire E: If agreement is rea
Page 11 and 12: importance of electronics toys. For
Page 13: from the beginning, evolved in the
Page 17 and 18: in developing new innovations in th
Page 19 and 20: also increased it with respect to R
Page 21 and 22: 5 Conclusions Gans and Stern (2000)
Page 23 and 24: Table 1 Structure of the toy indust
Page 25 and 26: Table 3 Mattel Financial Performanc
Page 27 and 28: Table 5 Mattel and Radica intensity

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