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Lionel’s American Flyer “buyout”

Lionel and American Flyer competed with one another in the 1950s. Most Lionel and Flyer enthusiasts know that Lionel now owns American Flyer. Here’s how Lionel’s American Flyer “buyout” happened.

AC Gilbert’s disastrous 1965 James Bond 007 Road Race set led to the company ceasing production in 1966 and going into bankruptcy the next year. That set the stage for Lionel’s cashless American Flyer buyout.

In 1967, both Lionel and A.C. Gilbert, American Flyer’s owner, were in trouble. Interest in trains was declining, and both companies struggled after their founders retired. Neither company had much success diversifying into other, more popular toys in the 1960s. Both companies experimented with slot cars, an extremely popular new niche. But this turned out to be Gilbert’s undoing. Gilbert marketed a poor quality James Bond 007 slot car racing set in 1965 through Sears, and the returns from that set and other toys drove the company to bankruptcy by 1967.

Lionel was in slightly better shape, but not exactly in position to buy out a competitor. Lionel filed for bankruptcy in 1967 itself. The merger drew some creative press, including one news article that stated two of the most popular railroads in America were merging, and the Interstate Commerce Commission doesn’t care.

How Gilbert and Lionel were connected

Walter Heller was financing both Lionel and Gilbert and handling their Accounts Receivable departments. Heller determined Gilbert could not emerge from bankruptcy as a viable company. So he asked Lionel to dispose of $300,000 to $400,000 of American Flyer product. Lionel agreed. Sales from the merchandise provided Heller and Gilbert with needed cash. In exchange, Lionel received the tooling and original artwork for the American Flyer product line.

Of course, Lionel and American Flyer had existed as competitors and occasional partners for decades. They sold parts to one another, and cooperated to buy Ives, ironically, with financial backing from Gilbert before Gilbert acquired American Flyer.

Financial details of the Lionel-American Flyer merger

So while Lionel and American Flyer merged, no cash changed hands up front. The story of Lionel buying American Flyer for $150,000 is, at best, an exaggeration. Gilbert may have received services worth $150,000, but Gilbert didn’t receive any hard cash, and Lionel would have had better uses for $150,000 if it had the money.

The benefit to Lionel was that it kept a competitor from acquiring the Gilbert product and trying to compete with Lionel with it. Lionel didn’t exactly treat the American Flyer tooling like a treasure, storing it outdoors for a time, and didn’t reintroduce American Flyer to the market until 1981.

Gilbert’s iconic Erector sets and its scientific toys like microscopes ended up in the hands of Gabriel Industries, a toy company who is, oddly, mostly forgotten today. Gabriel sold out to CBS in 1978, who merged it with Ideal and sold its toy operations in 1984 to GAF, owners of the Viewmaster brand.

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