With the objective of expanding its entertainment business, Hasbro, Inc. HAS has agreed to buy Entertainment One Ltd. (eOne). Valued at $4 billion, this deal is likely to be sealed during fourth-quarter 2019.
Per the deal, eOne’s shareholders will receive £5.60 in cash for each common share of eOne. The offer price represents a premium of 31% to eOne’s 30-day volume weighted average price as of Aug 22, 2019. In fact, the Peppa Pig owner will finance the deal with debt as well as $1-$1.25 billion in cash from equity financing.
Notably, UK-listed eOne is a global independent studio that develops, acquires, produces, finances, distributes and sales entertainment content. Hasbro’s chairman and chief executive officer, Brian Goldner, said that “The acquisition of eOne adds beloved story-led global family brands that deliver strong operating returns to Hasbro’s portfolio and provides a pipeline of new brand creation driven by family-oriented storytelling, which will now include Hasbro’s IP.”
Hasbro Welcomes Peppa Pig & PJ Masks to its Portfolio
Following the completion of the deal, global preschool brands — Peppa Pig and PJ Masks — will be part of Hasbro’s portfolio. Peppa Pig, a preschool animated television series, is a global success and has a huge viewership in China. Meanwhile, PJ Masks, an animated children's television series, also has a huge growth potential. PJ Masks’ rollout in China and launch of new season in several other regions are likely to prove beneficial for Hasbro.
The latest acquisition deal will help Hasbro to realize in-sourcing and other global annual run rate synergies of nearly $130 million by 2022. Cost synergies will be driven by integration benefits, and improvement in profitability of eOne’s licensing and merchandising activities.
The company also plans to move a substantial part of eOne’s toy business in-house, which will help in realizing cost synergies. Following the completion of the buyout, it will be accretive to the company’s EPS in the first year.
Although Hasbro has suspended its share repurchase program, it will continue with its quarterly dividend. The company will focus on achieving long-term leverage target of 2.00-2.50X.
Over the past year, the toys industry has been under tremendous pressure due to sharp decline in sales following the Toys “R” US liquidation. In order to offset the sales slump, industry players are banking on new distribution methods, development of digital-play components, exploration of ventures with other industries and focusing on international expansion.
We believe the acquisition of eOne will strengthen its digital capacities to drive sales. Hasbro continues to invest in innovation. Earlier, it partnered with Paramount to enhance storytelling and content capabilities. The Peppa Pig owner also invested in Boulder Media — the company’s animation studio — and increased digital capacities.
Hasbro continues to release Transformers Franchise in all forms of entertainment including movies, television and digital expressions. Year to date, the stock has surged 40.8% compared with the industry’s 13.6% growth.
Hasbro, which shares space with Mattel, Inc. MAT, JAKKS Pacific JAKK and Activision Blizzard, Inc. ATVI, has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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