In December 2019, Hasbro, the parent company of the G.I. Joe, Transformers, and Dungeons & Dragons brands, agreed to pay $3.8 billion for Entertainment One, a producer with a 6,500-title library and popular cartoons such as Peppa Pig and PJ Masks.
The toymaker quickly regretted the move, and this past May, while defending itself against a proxy battle from activist investor Alta Fox, which wanted Hasbro to spin off its games division, Hasbro called the timing of the studio purchase “unfortunate,” implying it overspent.
Now, Hasbro is getting rid of eOne, revealing on November 17 that it had hired bankers to look into selling the studio while keeping IP like Peppa Pig.
This is a nod to investors who have urged the company to sell a portion or all of eOne in order to reinvest in fewer, more profitable properties, preferably with outside partners to reduce costs and risk. Analysts on Wall Street praised the move.
“It makes a lot of sense to shrink the scale of eOne because there are a lot of non-core assets within that business that don’t necessarily fit in the Hasbro flywheel,” says Eric Handler of MKM Partners. According to the analyst, Hasbro will maintain its family content business and, like rival Mattel, will rely on production deals with studios, steamers, and big-name talent from across Hollywood. “They just need to keep enough infrastructure and personnel to shepherd Hasbro IP to a successful film or television project.”
CEO Brian Goldner, who died in October 2021, spearheaded the idea of becoming a Hollywood producer a la Marvel Studios. Chris Cocks, his successor, is focusing on establishing Hasbro as a gaming powerhouse, including the lucrative Magic: The Gathering franchise.
Rather than going through the costly process of producing titles, Hasbro can simply leverage its IP catalogue for Paramount projects such as Transformers: Rise of the Beasts and Dungeons & Dragons: Honor Among Thieves in 2023.
“Hasbro does not need to own eOne in order to bring Dungeons & Dragons to the big screen, much like George R.R. Martin did not need his own production studio to bring Game of Thrones to life,” Hasbro investor Fred DiSanto wrote bluntly in a letter to leadership in May.
The announcement of a sales process is hardly surprising. The toy giant cited the $385 million sale of eOne’s music business as “not core to our brand blueprint strategy.” In addition, the decision to divest eOne comes after division CEO Darren Throop announced in August that he will leave the company when his contract expires at the end of 2022.
Because of Hasbro’s focus on fewer, larger brands, almost everything else in eOne is now surplus. “This is a positive because it will allow Hasbro to deleverage faster and get rid of non-core businesses where performance is difficult to forecast and that are a distraction from running the strategic parts of the business (toys, tabletop, and digital gaming),” D.A. Davidson analyst Linda Bolton Weiser wrote in a Nov. 17 note.
Hasbro said it has hired J.P. Morgan and Centerview Partners to sell eOne, just days after a Bank of America investor note claimed the toy giant was “destroying the long-term value” of its Magic: The Gathering property by selling too many collectible cards, causing its stock price to plummet.
In terms of the sale process, the company stated in a filing that it “anticipates that it will take several months.” Hasbro’s entertainment team will continue to operate under the eOne production mark in the meantime.”
DiSanto, the CEO of Ancora Holdings and a Hasbro investor, also expressed optimism, stating that “divesting of eOne can improve the Company’s long-term positioning by enabling it to deleverage, reduce operational complexity, and reinvest in core segments and high-quality brands with strong growth trajectories.”
At the close of trading on Thursday, Hasbro shares had recovered $2.45, or slightly more than 4%, to $58.42.
