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What happened

Shares of toy magnate Mattel (NASDAQ: MAT) inched 1.9% higher through noon ET on Monday, and the reason appears to be a rumor… grounded in fact.

It’s a rumor that concerns potential mergers and acquisitions (M&A) activity going on behind the scenes at Mattel — and a filing with the Securities and Exchange Commission (SEC) that may support it.

So what

Citing M&A website Dealreporter, The Fly reports today that Mattel made a “curious filing” with the SEC after close of trading on Friday, which “reveals some bylaw changes, updating procedural and disclosure requirements for director nominations…” and is raising suspicions that “something may be happening behind the scenes.”

What specifically is happening, you ask? Well, the bylaw changes in question relate to existing stockholders of Mattel — perhaps including holders of large-enough chunks of shares that they might be suspected of wanting to take control of the company. And the aim of the changes seems to be to ensure that any such stockholders, who want to nominate directors to Mattel’s board or “propose other business” for consideration at the company’s stockholders meetings, accurately disclose any transactions they have been making in Mattel shares.

Now what

What the board seems to be trying to accomplish with these bylaw changes is ensure that if there’s an activist shareholder in the house, they makes their presence and intentions clearly known — else any “nomination or proposal of other business” will be “disregarded.”

What’s less clear is why an activist investor would be interested in Mattel right now. Thanks largely to the popularity of the new Barbie movie, one imagines, Mattel stock has been on kind of a tear lately. From June 21 — a month before Barbie opened in theaters — through today, Mattel stock is up a solid 20%, and now sells for an eye-popping 33 times trailing earnings, which is quite a lot for a stock that’s expected to average less than 10% annual earnings growth over the next five years.

This isn’t ordinarily the kind of performance that attracts activist investors seeking to rock the boat and shake up management to get a stock price moving higher. On the other hand, from a business perspective, Mattel does still seem to be underperforming, with sales down 12% year over year last quarter, for example, and earnings down 59%.

Were an activist to appear and agitate to change those numbers, I suspect investors might actually be pretty pleased — even if management might be less so.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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