Mattel to Buy Thomas the Tank Engine Parent Company Hit Entertainment for $680 Million

In an effort to revive and expand its preschool business, Mattel is purchasing Hit Entertainment, the maker of Thomas the Tank Engine, for $680 million in cash.

In the past several years, Mattel has floundered in the toddler department as its once dominant Fisher-Price brand made up just $1.83 billion of its $5.86 billion in revenue last year. Purchasing Hit Entertainment will be key to Mattel's efforts in revamping sales in this area, as Thomas the Tank Engine, a toddler favorite for 67 years, makes up 80% of Hit's profit.

In a statement, Mattel CEO Robert Eckert said:

"With more than half of the Thomas & Friends revenue generated from non-toy products, this transaction will marry Mattel’s global marketing, distribution and brand management capabilities with HIT Entertainment’s global programming and licensing expertise to accelerate growth of the combined portfolio."

Hit Entertainment is a U.K. based children's entertainment that owns the rights to Thomas & Friends. That includes its engines, tracks and TV shows. Hit Entertainment is owned by private equity company Apax Partners, and also has a large portfolio of other popular children's toys. The deal, however, does not include its interest in the cable television network Sprout.

Mattel already markets many Thomas & Friends plastic toys through a license from Hit Entertainment that extends through 2014, but said that the purchase will allow them to continue expanding and growing the product line into "the foreseeable future."

Other toy companies were also interested in acquiring hit, but last week the Wall Street Journal reported that Mattel and Hit had entered into exclusive talks and that a deal was imminent. The transaction will be financed using cash and debt, and is slated to cose in the first quarter of 2012, pending regulatory approval.