Lego Builds New Billionaires as Toymaker Topples Mattel
Lego A/S, the Billund, Denmark- based toymaker famous for its colorful building bricks, has minted three new billionaires as the company’s revenue soared 25 percent last year.
The children of Kjeld Kirk Kristiansen, Denmark’s richest man -- Sofie Kirk Kiaer Kristiansen, Thomas Kirk Kristiansen, and Agnete Kirk Thinggaard -- hold a combined 37 percent economic interest in the company valued at more than $5.3 billion, according to the Bloomberg Billionaires Index. None have appeared individually on an international wealth ranking.
The closely held company’s sales climbed to 23.4 billion Danish kroner ($4.04 billion) in 2012, according to the company’s annual report, helping the 81-year-old operation pass Mattel Inc. (MAT) to become the world’s most-valuable toy manufacturer.
“Lego is on fire,” Gerrick Johnson, an analyst with BMO Capital Markets in New York, said in an e-mail. “It’s the world’s biggest toymaker in terms of net income, operating income and Ebitda. It had a 71 percent gross margin in its latest results and is posting strong sales growth.”
Lego is valued at $14.6 billion, based on the average enterprise value-to-earnings before interest, tax, depreciation and amortization, enterprise value-to-sales and price-to- earnings multiples of competitors Mattel (MAT) and Hasbro Inc (HAS) (HAS)., according to data compiled by Bloomberg. Enterprise value is defined as market capitalization plus total debt minus cash.
El Segundo, California-based Mattel, which makes Barbie dolls, has a market capitalization of $14.4 billion, after hitting a 52-week high yesterday. Pawtucket, Rhode Island-based Hasbro, which sells the Monopoly board game, has a $5.4 billion market capitalization.
Johnson values Lego, which manufactured 45.7 billion bricks last year, at about $15 billion.
“Using the same multiples investors have given to Mattel, Lego would be worth $17 billion,” he said. “I use a discount owing to the fact that Lego isn’t as diversified and doesn’t have much to fall back on should the construction toy market cool. This multiple though would still put Lego’s valuation slightly ahead of Mattel.”
Kjeld Kirk Kristiansen, the grandson of Lego founder Ole Kirk Kristiansen, has a net worth of $5.9 billion, according to the Bloomberg ranking. The family controls 75 percent of the operation through Kirkbi A/S, a Billund-based investment company, Lego said in its report.
The remaining 25 percent is held by the Lego Foundation, a children’s charity established by the family in 1986. Roar Rude Trangbaek, a Lego spokesman, said the Kristiansens declined to comment on their net worth calculation.
Kirkbi also owns 36 percent of Poole, England-based Merlin Entertainments Group, a closely held theme park operator that manages five Legolands in four countries. The stake is valued at more than $900 million, according to data compiled by Bloomberg.
Merlin is valued using the average enterprise value-to- sales, enterprise value-to-Ebitda and price-to-earnings multiples of four publicly traded peers: Six Flags Entertainment Corp, Cedar Fair LP, Oriental Land Co. and Euro Disney SCA.
The family holding company controls Lego’s intellectual property rights. Lego Group, a subsidiary of Lego A/S, manufactures and sells the toys. In 2012, Lego Group paid 1.5 billion kroner in licensing fees and royalties, mostly to Kirkbi, according to its annual report.
Lego was founded in 1932 by Ole Kirk Kristiansen. Its name is derived from the Danish words “leg godt,” which translates as “play well.”
In 1957, Kristiansen passed the operation to his four sons who, a year later, began selling the company’s signature studded bricks that we know today. One of the brothers -- Kjeld Kirk Kristiansen’s father, Godtfred -- consolidated control of the company in 1961 by buying out his siblings.
Kristiansen became chief executive officer in 1979, and pioneered the concept of play themes, selling Lego sets with castle and town motifs. He also struck licensing deals, including Lego’s popular Star Wars line, which was first released in 1999 with sets such as Anakin’s Podracer and X-wing Fighter.
In 2002, the company’s momentum sputtered as Lego management became distracted by diversification efforts, including theme parks and video games, according to Per Thygesen Poulsen, author of the 1993 book, “Lego: A Company and its Soul.”
“They spread out in so many directions that all efficiency was lost,” Poulsen said in a telephone interview. “The company had inherited this from Kjeld’s father, Godtfred, who was willing to try anything. At one point, he even considered building actual houses based on Lego bricks.”
Danske Bank A/S (DANSKE), Lego’s primary bank, stopped lending the company money in 2004 as its losses mounted. Kristiansen served on the bank’s board from 1997 to 2001.
“It was a big crisis,” Soeren Jakobsen, author of “Lego Legacy,” a book on the Lego heirs published in 2008, said by phone. “Lego’s main bank wouldn’t provide further loans and the family had to resort to financing the company with its own money and taking up a loan with a new group of banks.”
By 2004, disappointing sales, and competition from Hasbro and Mega Bloks, a competing toy line, resulted in Lego posting its third annual loss in five years. Kristiansen began to implement a turnaround plan, cutting 1,000 jobs and limiting product lines. He soon stepped aside, ceding control to a hand- picked management team led by Joergen Vig Knudstorp, who is now the company’s CEO.
Knudstorp refocused the company’s product line and sold businesses he deemed unessential.
“At first I actually said, let’s not talk about strategy, let’s talk about an action plan, to address the debt, to get the cash flow,” he said in a 2011 Bloomberg Businessweek article. “But after that we did spend a lot of time on strategy, finding out what is Lego’s true identity. Things like, why do you exist? What makes you unique?”
In 2011, Kristiansen restructured the family holding company for succession planning. He reduced his economic interest in Kirkbi to just over half, with the remainder divided equally between his children, Danish newspaper Jyllands-Posten reported in a May 2012 interview with Kirkbi chief executive officer, Soeren Thorup Soerensen. The Kirkbi website lists each of the four Kristiansens as a shareholder with more than 5 percent of the company.
To calculate economic interest and dividend flows, the Bloomberg index applies a 51 percent stake in Kirkbi to the elder Kristiansen and splits the remaining 49 percent among the three children.
Kristiansen continues to maintain a low profile, an ethos born out of the moderation his father espoused and that is imbued into Lego’s culture, Poulsen said.
“Never be extravagant was part of Godtfred’s upbringing.” he said. “He handed that onto his employees and children. Kjeld lives modestly, relatively speaking.”
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