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Hasbro Makes a Big Acquisition

Danny Vena, The Motley Fool

Hasbro (NASDAQ: HAS) announced on Thursday that it would acquire studio Entertainment One (eOne) in an all-cash deal valued at 3.3 billion pounds ($4 billion). Under the terms of the agreement, Hasbro will pay 5.6 pounds ($6.86 at current exchange rates) for each share of eOne stock, a 31% premium to its recent price. The transaction has been unanimously approved by the board of directors of both Hasbro and eOne.

eOne is the indie studio behind such well-known kids programming as Peppa Pig and PJ Masks. In a press release, Hasbro said that in addition to the company's beloved brands, eOne "dramatically enhances [its] storytelling capabilities and franchise economics in TV, film, and other mediums to strengthen Hasbro's brands." 

Two animated young pigs splashing in the mud in a scene from eOne's Peppa Pi.

Peppa Pig and her brother George. Image Source: eOne.

"Hasbro's portfolio of integrated toy, game and consumer products, will further fuel the tremendous success we've achieved at eOne," said Darren Throop, chief executive officer of eOne. "eOne's brands and TV and film expertise, together with Hasbro's brands, toy and game innovation, and licensing capabilities, positions us to more quickly drive revenue and profit over the medium-term," said Deborah Thomas, Hasbro's chief financial officer.

A winning combination

Hasbro estimates that it will be able to achieve about $130 million in cost synergies annually by 2022, and the deal will be accretive to adjusted earnings per share in year one. The company will also benefit from the addition of highly seasoned entertainment executives and the expanded capabilities in live action and animation, both in television and films.

Having an award-winning television and movie studio under its corporate umbrella could be a big deal for the toymaker.

Leveraging its successful brands

Hasbro made an important discovery soon after Brian Goldner, now the company's CEO, joined the company in 2000. After several years of struggles and few hit toys, Goldner dispatched a team of employees on a fact-finding mission around the U.S., talking to parents and their children about the toys they liked. What they found was that kids wanted toys that were linked to television shows and movies. "Kids respond to characters and stories," says John Frascotti, Hasbro's president and chief operating officer. 

This epiphany led Hasbro to leverage its intellectual property, creating movies and television shows that reinforced its toy brands. In 2007, the company co-produced Transformers, which turned out to be a megahit, raking in nearly $710 million in worldwide ticket sales. Its success spawned a franchise, and the seven Transformers movies to date have garnered $4.85 billion at the box office. 

The company has also created other movies and television shows based on other popular properties, like G.I. Joe, Ouija board, and My Little Pony. 

In an interview in 2017, Goldner addressed the strategy:

The movies create incredible events to help elevate the interest in those brands globally. Television and streamed content help the fans learn about new stories over time. We're looking at an all-screens strategy because each element of that content deployment does different things for the audience. 

When asked if Hasbro would ever buy a studio, Goldner said, "Owning and controlling the calendarization of your properties, the storytelling, and the economics of the engagement of a global audience and consumer are all very compelling."

Now he'll get the chance to do just that.

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Danny Vena owns shares of Hasbro and has the following options: long January 2020 $50 calls on Hasbro. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool is short shares of Hasbro. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com