``They're obviously having a great difficulty selling it because it hasn't happened yet,'' said Merrill Lynch analyst Hayley Kissel. ``The basic timeline on mergers and acquisitions suggests they should have had an announcement already.''

Mattel spokeswoman Lisa Marie Bongiovanni declined to give an update on the company's efforts to sell the division.

``We have never given a date that we would have news by, and we're not doing that now,'' she told Reuters.

Ever since El Segundo, Calif.-based Mattel acquired educational software provider The Learning Co. in May 1999 and renamed it Mattel Interactive, the unit has been a thorn in the side of the maker of Barbie dolls and Hot Wheels toy cars.

Mattel had planned to make the unit a growth engine that leveraged its popular brand names into new high-tech products for kids. Instead, unexpected losses crippled earnings, sent Mattel's stock price plummeting and led to the departure of former Chief Executive Officer Jill Barad last February.

With its shares only a little above their 52-week low of $8-15/16, Mattel has been eager to dump the interactive unit.

When it first announced a sale, analysts predicted Mattel Interactive could fetch $500 million to $1 billion -- already a fraction of the $3.5 billion Mattel paid for The Learning Co.

Mattel has since sold the division's Cyber Patrol unit for $100 million, and analysts believe the remaining assets could fetch as little as $300 million.

Many Mattel watchers cited the company's lack of attention to the unit -- which the company considers a discontinued operation -- for their rapidly falling expectations. Several said a brain drain has also occurred at the division, although Mattel would neither confirm nor deny the speculation.

``I know some people who work there,'' said Brian Eisenbarth, an analyst at Collins & Co. LLC. ``There's been quite a bit of people leaving because the job market's hot right now and these people have job skills that are transferable anywhere.''

Mattel Interactive's outlook is likely worsening the longer the unit remains on the market without a buyer, he added.

``There's no leadership,'' he said. ``It's just drifting until someone gets in there and starts making changes.''

Eisenbarth added that Mattel Interactive is rapidly falling behind the curve in the interactive toy arena. He said the unit is still focused on products for personal computers, whereas the future of interactive toys could well lie with video-game players like the Sony PlayStation and Sega's Dreamcast.

``The longer they wait, the worse it's getting,'' he said. ``They're putting out stuff that runs on a PC rather than a video console that hooks to your TV. ... Kids don't want to sit in front of a computer anymore.''

Mattel Interactive spokeswoman Susan Salimen disputed the perception that the unit lacks innovation. She said about a dozen titles are now in development or are on the market for Game Boy and PlayStation video players.

But Merrill's Kissel said Mattel's recent efforts at its interactive unit have focused more on cost reduction than on the innovation necessary to make it an industry force.

``They've done a little bit on bringing out new titles, but where they've really concentrated their efforts are reducing the bloated cost structure,'' she said.

She speculated that Mattel could ultimately be forced to sell Mattel Interactive piecemeal rather than in its entirety.

``It's definitely an albatross,'' she said.

Mattel shares were off 1/16 at $10-1/2 in mid-afternoon trading Tuesday on the New York Stock Exchange.

Source: Reuters

[Posted 9/13/2000]