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Mega Brands Inc. is preparing to ride the wave of its very own Halo effect.

Shares of the Montreal-based toy maker – best known for its Mega Bloks toys – more than doubled Tuesday after the company announced a new licensing agreement with Microsoft Corp.'s Game Studios to create a line of construction toys based on the software giant's coming Halo Wars video game.

Mega Brands has struggled over the past two years in the face of legal issues and product recalls, but the company believes Halo can help it turn things around and keep children interested in its products as they graduate from its chunky preschooler bricks to the “Micro” bricks aimed at tweens.

“The last two years have had their challenges,” said Harold Chizick, Mega Brands' vice-president of corporate communications.

“There are a lot of people who still find amongst the adversity a lot attractive about our company and the people in it. It's definitely a massive milestone.”

Although movies, television shows and comic books continue to produce characters that lend themselves to action figures, building-block sets and other toy licensing deals, video games are becoming an increasingly popular source of intellectual property for manufacturers looking to catch the next hot toy trend.

“Obviously, licensing is a very important part of the toy industry, and this continues the trend for sources of licensing that aren't necessarily just TV or movies,” said Chris Byrne, a New York-based toy analyst known as The Toy Guy.

“[Video games] are being considered in the way that movies have traditionally been. The validation of these as an entertainment medium means that merchandisers are going to be looking at broader applications of the licensing properties,” he said.

A demonstration version of Halo Wars will be available this week, and the game will be officially launched next month. The Mega Brands products will be available beginning in June. Terms of the licensing deal were not revealed.

Halo Wars is the latest incarnation of Microsoft's most successful game franchise for its Xbox 360 video game console. Halo 3, released in September, 2007, pulled in more than $300-million (U.S.) in its first week of sales.

Halo, and its iconic lead character Master Chief, is the latest in a growing line of video game properties that have spawned successful toy product lines. Nintendo Co. Ltd. has cashed in with merchandising deals surrounding some of its top titles – most notably Super Mario Bros. and Pokémon – while characters from Activision Blizzard Inc.'s World Of Warcraft game have also been turned into action-figure toys by DC Comics Unlimited.

Microsoft has an existing Halo licensing deal with McFarlane Toys – a U.S. company founded by Todd McFarlane, the Canadian-born creator of the Spawn comic book series – which specializes in action figures and toys aimed at a mature audience.

McFarlane's Halo toys have become some of the hottest selling items in the company's catalogue, which also includes action figures based on the rock band KISS, NHL hockey players and the Guitar Hero video game franchise.

“There are way more eyeballs that watch Iron Man than who play video games,” Mr. McFarlane said in an interview. “But with that said, the guys who do play Halo must be very loyal, like hockey fans, and want to collect more than just one or two things – they collect a handful of them.”

Mega Brands has previously created toys based on Walt Disney Co.'s Pirates of the Caribbean and High School Musical franchises, as well as Marvel Comics' Spider-Man.

The announcement caused shares of Mega Brands to jump 182 per cent to $1.10 on the Toronto Stock Exchange.

Still, shares of Mega Brands are trading below their 2006 levels, before the Montreal-based company was forced to recall some of its Magnetix line of building sets, after one child was killed and 27 others injured when they swallowed small magnets from the toys.

For Mega Brands, the addition of Halo to its portfolio of toys not only boosts its “cool” factor among its older grade-school audience, but shows that the company is capable of attracting high-calibre partners such as Microsoft, Mr. Chizick said.

“Halo is a property that is ‘evergreen,'” he said. “It is the type of property that, unlike movie and television licenses that have peaks and valleys, depending on launches and rates, is a 365-day-a-year licence.”