Shares in Barbie toymaker Mattel have jumped by 20percent on reports rival toy giant Hasbro is considering a takeover.
Shares in Hasbro, whose brands include Play Doh and My Little Pony, are also 6 percent higher in New York.
Last month shares in both companies fell after a warning that the bankruptcy of retailer Toys R US could limit sales.
The two companies are among the world’s biggest toy makers. Mattel tried to take over Hasbro in 1996.
But over the past year the fortunes of the two have diverged markedly, as Mattel grapples with falling sales.
Mattel, which is valued at $6bn, is now the smaller firm by many measures.
Its shares have lost almost half their value over the past year and were trading at $17.68 on Monday.
Hasbro’s shares were $97 – $10 higher than a year ago and giving it a market value double that of Mattel.
Mattel’s depressed share price may make it an attractive takeover target, but it could also make its leaders reluctant to do a deal now, said Jaime Katz, senior equity analyst for Morningstar.
Mattel, which owns brands such as Fisher-Price, American Girl and Hot Wheels, sells its products in 150 countries and employs 32,000 people globally, including in manufacturing.
In its third quarter results released last month, sales fell 13 percent to $1.56bn and the firm reported a loss. It suspended its dividend payout to shareholders and accelerated a cost-cutting drive.
At Hasbro, sales increased 7percent to almost $1.8bn in the most recent quarter. The firm, which has shed manufacturing operations, employs about 5,400 people.
Hasbro’s new chief executive has used story-telling to boost sales – a strategy that would work well with Mattel’s products, said analyst Linda Bolton Weiser, who tracks both companies for financial services firm DA Davidson.
In a research note, Ms Bolton Weiser said the benefits of a combination “would be immense” and would likely result in hundreds of millions in savings.
The proposed takeover in the 1990s faltered amid US competition concerns.
It is not clear how US regulators would respond to a deal today.
Analysts estimate the two firms together would account for less than 33 percent of the US toy market. But the industry is changing rapidly, as Amazon becomes more dominant and stalwarts such as Toys R Us struggle.
A potential merger could also run into clashes of corporate culture and other processes, Ms Katz wrote in a research note.
“We caution investors that such speculation [about a combination] has fizzled in the past, and a similar fate could occur this go-round,” she said.