Hasbro toys with DreamWorks buy

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LOS ANGELES — DreamWorks Animation shares surged 15 per cent as Wall Street was quick to embrace a potential sale of the studio to toy giant Hasbro.

A deal would combine one of the industry’s leading animation studios, known for its Shrek, Kung Fu Panda and Madagascar movies, with a toy maker that has been eager to expand its presence in Hollywood and create a broader market for toys including G.I. Joe, Transformers and My Little Pony.

Details of the talks emerged late Wednesday, sending the stock to $26.02 at the closing bell in New York on Friday.

“We do see some opportunities for the two to effectively work together through both consumer product line development and the use of some of Hasbro’s brands/franchises in future movies,” analyst Eric Wold of B. Riley & Co. wrote in a research note.

Representatives of DreamWorks and Hasbro declined to comment on what they called “rumour and speculation.”

The talks come as DreamWorks Animation chief executive Jeffrey Katzenberg has been actively shopping the studio he co-founded 20 years ago.

Katzenberg had been in talks in September to sell the studio to Japanese telecommunications giant SoftBank, but those discussions fizzled. Katzenberg also made an unsuccessful effort to interest Rupert Murdoch’s 21st Century Fox in buying DreamWorks.

The talks with Hasbro, however, are serious and could conclude in the next 60 days, two people familiar with the negotiations said. Under one scenario being discussed, Katzenberg would be in charge of the combined operation.

Hasbro executives see synergies in joining with DreamWorks, but have yet to agree on a sale price, according to the sources, who were not authorized to discuss the confidential negotiations.

Katzenberg is said to be seeking more than US$30 per share for DreamWorks, which is considered a high premium for the studio.

Buying DreamWorks Animation would allow Hasbro to expand its push into Hollywood, taking advantage of the studio’s creative talents and film library. Hasbro has a growing entertainment business, including a studio in Burbank to develop and produce TV shows based on its toys.

The results have been mixed. Whereas the 2012 Battleship movie was a dud, the Transformers movies have grossed about $3.75 billion worldwide. The movie Ouija, based on the Hasbro board game, has been a hit.

Hasbro also has a history of television animation dating back to the 1980s. Four years ago, it launched a joint venture with Discovery Communications to operate a children’s channel known as the Hub Network. In September Hasbro sold part of its stake in the channel to Discovery.

DreamWorks has taken three write-downs in two years on its films, causing a sharp decline in its share price.

Analysts said a tie-in with Hasbro would allow DreamWorks to significantly expand its consumer products business, which is relatively small compared with rivals such as Walt Disney Studios. It would also fit Katzenberg’s strategy of diversifying operations.

DreamWorks also owns Awesomeness TV and has been in talks with Hearst Publishing to form a joint venture with the YouTube teen network, people familiar with the matter say.

Investors in Hasbro reacted coolly to the news, fearing buying DreamWorks would expose the company to the risks of the movie business. Hasbro’s stock closed Friday at $54.02, down five per cent since Wednesday.

Analysts also weren’t convinced.

“There is no industrial logic whatsoever to this hypothetical combination,” Vasily Karasyov, an analyst with Sterne Agee, wrote in a research note. “We don’t see a plausible argument for why Hasbro would pay 41 per cent of its current market capitalization for a company which… is facing serious challenges.”

 

— Los Angeles Times