Shares of RC2 Corp. (NASDAQ: RCRC) touched a new more than 3-year high of $27.59 on Thursday, shortly after the Nikkei business daily first reported that Japan's Tomy Co. Ltd. and RC2 were in merger talks.

The takeover speculation was later confirmed by RC2 Corp. that Tomy will acquire the U.S.-based toymaker for $27.90 a share or $640 million in cash.

This merger further enables Tomy to move towards our goal of increasing our global profile adding significant additional business in North America and Europe. We have known and admired RC2's excellent team and their achievements over their 22-year history, and look forward to their contribution to our combined group, Tomy President Kantaro Tomiyama said in the statement.

Tomy is targeting overseas acquisitions to revive growth as falling birth rates in Japan crimp demand for new toys, according to a Bloomberg report. The Tokyo-based company has posted two straight annual declines in revenue.

RC2 said the acquisition will be through an all-cash tender offer and second-step merger. The tender offer price represents a 27.2 percent premium over the closing price of its common stock on March 9 of $21.93. The tender offer is scheduled to commence in 10 business days and is expected to close during the second quarter of 2011.

RC2 may solicit alternative acquisition proposals from third parties for 30 days through April 9, subject to extension for an additional 15 days under certain circumstances.

The transaction was approved by the board of directors of both companies. RC2's board has recommended its stockholders to tender their shares to the offer. The deal enables Tomy to expand overseas and offset shrinking domestic demand due to a declining population.

The combined companies expect to benefit from a more diversified product portfolio, greater leverage of Tomy's R&D, sourcing and manufacturing network, and greater access to the U.S. and Japan, two of the world's largest toy and juvenile product markets.

For Tomy, BofA Merrill Lynch is acting as exclusive financial adviser, while Skadden, Arps, Slate, Meagher & Flom LLP and Nishimura & Asahi are acting as legal advisers with regard to the transaction. For RC2, Robert W. Baird & Co. is acting as exclusive financial adviser and Reinhart Boerner Van Deuren s.c. is acting as its legal adviser.

RC2's mother, infant, toddler and preschool products are primarily marketed under its Learning Curve family of brands in addition to classic licensed properties such as Disney's Winnie the Pooh, Thomas & Friends, and Bob the Builder. RC2 markets its youth and adult products primarily under the Johnny Lightning and Ertl brands.

Tomy is Japan's largest toy and children's merchandise company with 25 subsidiaries and affiliated companies worldwide. The company, which itself merged with Takara Co. in 2006, is among the top five traditional toy companies in the world. The company's longtime sellers include Tomica cars, Plarail train sets and Pokemon toys.

RC2 stock gapped open sharply lower on March 10 at $21.61 compared to previous day's close of $21.93. But shortly after the speculation the stock soared to hit a new more than 3-year high of $27.59. The stock closed Thursday's regular trading up 16.32 percent at $25.51 on a volume of 3.13 million shares on the NASDAQ stock market, while in the after-hours the stock further gained 8.43 percent to $27.66. The stock traded between $14.53 and $27.59 during the past 52 weeks.