UPDATE 1-Hornby adds model car maker Corgi to its collection

Thu May 1, 2008 9:21am BST

Quotes

   

(Adds CEO, analyst comments, detail, background, shares)

By Mark Potter

LONDON May 1 (Reuters) - Hornby (HRN.L) has agreed to buy model car maker Corgi for 8.3 million pounds ($16.5 million) to add to its stable of iconic toy brands, which include Scalextric racing cars, Airfix model planes and its eponymous train sets.

The British firm said on Thursday it was buying Corgi Classics, one of the world's oldest makers of collectible die-cast models of trucks, buses, cars and aeroplanes, from Corgi International Ltd CRGI.O for 7.5 million pounds in cash.

It will also pay about 800,000 pounds for Corgi's stock.

The deal marks the latest attempt by Hornby to breathe new life into a declining, historic brand.

Chief Executive Frank Martin said Hornby would invest around 750,000 pounds a year in Corgi and aims to expand it from its core market of adult male collectors in Britain into younger and more international markets.

It plans to do this by striking character licensing deals, in the way it has expanded the appeal of its Hornby trains with Harry Potter and Thomas the Tank Engine licensing deals, and by taking advantage of its international distribution network.

"We want to make it more relevant to younger audiences, which extends the life of the brand," Martin told Reuters in a telephone interview.

Corgi was established by the Mettoy Company in Northampton, which first started to produce pressed metal toys in the 1930s.

The Corgi brand for die-cast models was born in 1956 and at its height, was selling millions of toys a year, including the Batmobile, the Lotus John Player Special Formula 1 car and James Bond's Aston Martin DB5.

More recently, production has been moved to lower-cost plants in the Far East, but sales have gone into decline, falling to around 6.5 million pounds in the year ended March 31 from about 18 million in the late 1990s.

Martin said this was largely due to cash constraints at its U.S. owners, Corgi International.

He said Hornby aimed to increase sales to at least 10 million pounds within three years, and that the deal would be earnings neutral in the year to March 2009 and should add about 750,000 pounds to pretax profit in the year to March 2010.

"We believe that the Corgi acquisition is a sensible move at a good price," Dresdner analyst Sanjay Vidyarthi said in a research note, raising his rating on Hornby shares to "buy" from "add" and his price target to 228 pence from 214 pence.

Hornby shares closed at 164 pence on Wednesday.

Martin said Hornby was not immune to the current slowdown in consumer spending, but its core market of adult collectors was more resistant to the downturn than many other social groups.

He was comfortable with analysts' pretax profit forecast of about 8.1 million pounds for the year ended March 31, and said Airfix had met or exceeded the firm's promise of generating around 4 million pounds of sales.

Hornby traces its roots back to 1907 when founder Frank Hornby established Meccano Ltd to launch his metal model building kits for children. Hornby trains were introduced in 1920. (Editing by Erica Billingham)