"It's already turning nasty."
That's the way analyst Dennis McAlpine of McAlpine Associates summed up the events of Nov. 16, when a press release war broke out between Malibu-based toymaker Jakks Pacific Inc. and its partner-turned-legal foe, World Wrestling Entertainment Inc.
Last month, Stamford, Conn.-based WWE accused Jakks executives of paying $100,000 in kickbacks in 1998 to secure the rights to an 11-year WWE licensing deal. WWE wants the deal nullified, and federal investigators are looking into the allegations of bribery.
When the lawsuit was filed, it knocked Jakks' share price for a loop. Last week, Jakks fired back. Once again, shareholders got caught in the crossfire.
Early Tuesday morning, Jakks sent out a press release under the headline: "Jakks Pacific Signs TV Games License for World Wrestling." Investors, acting on the erroneous assumption that the WWE lawsuit had been resolved, bid up shares by as much as $1.08 a share in intraday trading a 6.1 percent move. Another release issued later in the day about Jakks teaming up with WWE on a charity event, reinforced the perception of a d & #233;tente.
But there was none.
It took five hours for Jakks to issue a third press release, providing "Further Comment on WWE TV Games." In it, Jakks acknowledged that a licensing deal for a new line of plug-it-in-and-play TV games had been signed with WWE in July before the legal tussle began and that there was no change in the status of the lawsuit. Jakks shares staged a hasty retreat, leaving investors and analysts miffed. They ended the day almost exactly where they had started.
"When the stock went up, they had a responsibility to clarify that it had nothing to do with the lawsuit," said Arvind Bhatia, an analyst at Southwest Securities Inc., who was fielding calls from confused investors.
That's when WWE smelled victory and jumped into the fray.
It sent out its own press release chastising Jakks for quoting a WWE executive on a licensing deal that was signed four months ago, before the lawsuit ever erupted.
Determined to have the final word, Jakks issued a fourth press release at 8:34 p.m. Eastern time, claiming that WWE had cleared the press release earlier this month.
"We're strategic about when we announce press releases and licensing deals," said Genna Goldberg, a Jakks spokeswoman.
Overall, the dispute hasn't been good for Jakks, whose executives have been criticized more than once on Wall Street by announcing negative news shortly after raising money.
Before the lawsuit was filed in October, Jakks shares were trading in the $23 to $25 range, and they fell as low as $12.75 in the ensuing days. After the dust settled on Nov. 18, Jakks shares were trading around $16.90 each, having lost about 76 cents over the previous three sessions.
Jakks, which gets 50 percent of its sales from traditional toys such as WWE action figures, reported a 196 percent jump in third quarter net income, to $25.7 million (95 cents a diluted share) from $8.7 million (35 cents) in the year-ago period. Sales in the period ended Sept. 30 rose 128 percent from the year-ago quarter, to $206 million. The increases were attributed primarily to its recent acquisition of Play Along Inc., which manufactures dolls based on personalities such as Britney Spears, Care Bears, Teletubbies and Lord of the Rings characters. Last year, Jakks' joint venture with WWE contributed $7.4 million of its $20.6 million in total profits, according to filings with the Securities and Exchange Commission.
For reprint and licensing requests for this article, CLICK HERE.