Mattel Could Be Hit With Lawsuits on Recalls

Mattel Inc. could face a series of lawsuits after it was forced to take back about 20 million toys worldwide. On Tuesday, the U.S. toy maker recalled 18.2 million magnetic toys and another 250,000 Pixar Sarge toy cars (pictured) with lead paint. Earlier this month the company's Fisher-Price unit was forced to recall about 1.5 million preschool toys for the same reason. The company said yesterday it may still recall more products as it steps up testing and quality control on thousands of toys. "Mattel has a spectacular reputation that they risk now in a very dramatic way," said public relations expert Howard Rubenstein. "It is a mighty blow. They have got to be prepared for a lengthy series of court battles." Lawyer Ted Tanenebaum told Reuters, "If there are potentially kids who are harmed out there ... then there are going to be big lawsuits." However another lawyer, who often defends companies in product liability suits, said that although he expected to see lawsuits filed, they were unlikely to harm the company: "Unless someone can say that a specific child suffered lead poisoning and they can trace it to that particular toy, it is going to be hard really to bring a claim," said Creighton Magid of the law firm Dorsey & Whitney. Mattel launched a national advertising campaign Tuesday assuring customers its was taking steps to ensure the future safety of its toys: "Our long record of safety at Mattel is why we're one of the most trusted names with parents," CEO Bob Eckerty wrote in a full-page ad that ran in Tuesday's Wall Street Journal, New York Times and USA Today. So far Mattel shares have weathered the storm. Shares fell $0.57 (2.4%) Tuesday to $23, and are down just 2.5% since the first recall was reported.

Sources: Reuters, Wall Street Journal
Commentary: Despite Mattel Recall, I Remain Bullish • Mattel's Earnings Worse Than They Appear
Stocks/ETFs to watch: MAT. ETFs: FXI, PGJ
Earnings call transcript: Mattel Inc. Q2 2007

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