UPDATE 1-RC2 to buy children's publishing unit for $163 mln

(Adds details, CEO comment)

NEW YORK, June 23 (Reuters) - U.S. toy company RC2 Corp (RCRC.O: Quote, Profile, Research) said on Monday it plans to buy the Children's Publishing Division of privately held Publications International Ltd for $163 million in cash, to further expand into the market for preschool products.

Illinois-based Children's Publishing Division, with products including electronic books and story books, will be a "strong strategic fit" for RC2's Learning Curve brand of toys, said Curt Stoelting, chief executive of RC2.

"(Children's Publishing Division) will further improve RC2's competitive position in the early learning market, create a platform for new lines of early learning products and create additional opportunities for international expansion," Stoelting said in a statement.

The payment excludes transaction fees and expenses, RC2 said. Its transaction and future working capital needs are expected to be financed by a new $325 million credit facility led by Bank of Montreal, RC2 added.

RC2 expects annual integration cost savings from $8 million to $10 million within two years of completing the purchase of the division.

The company expects the deal to boost 2008 earnings by 15 to 20 cents per share and 2009 earnings by 30 to 40 cents a share. But RC2 said the deal could hurt earnings in individual quarters, given the timing of the deal and cost savings and the seasonal nature of toy sales. (Reporting by Aarthi Sivaraman, editing by Gerald E. McCormick and Derek Caney)