By Tonya Garcia, MarketWatch
Hasbro Inc. isn’t just getting Peppa Pig in its $4 billion acquisition of Entertainment One. It’s also adding content creation capabilities and other valuable assets, according to MKM Partners.
Hasbro /zigman2/quotes/201249319/composite HAS +0.27% and Entertainment One announced the deal late Thursday, with Hasbro expecting $130 million from in-sourcing and other synergies by 2022. The deal is expected to add to adjusted earnings per share in the first year after the transaction, said Hasbro Chief Financial Officer Deborah Thomas on a post-announcement call.
The deal is expected to close in the fourth quarter of 2019.
U.S. based Hasbro is the world’s largest toy maker by market capitalization and third largest by revenue. Entertainment One, a U.K.-listed company, reported fiscal 2019 annual revenue of £941.2 million, about $1.15 billion according to a Friday currency conversion.
Peppa Pig had $1.35 billion in retail sales in fiscal 2019, and PJ Masks, $1.15 billion. MKM thinks both brands have room for growth, especially in China.
And Entertainment One’s television and film division can help increase content production and work with film studios and broadcast operators.
“In our view, the $4 billion proposed acquisition of Entertainment One serves an appealing dual purpose of expanding the company’s portfolio of owned IP assets while also increasing its media production capabilities at a time when demand for franchisable, global content is at an all-time high,” MKM’s Eric Handler wrote.
MKM rates Hasbro stock buy with a $126 price target.
“[T]he acquisition bolsters Hasbro’s competitive positioning in the preschool category,” a significant market for the company, according to Stifel.
There are also “opportunities to unlock value with acquired brands by moving Entertainment One’s toy business in-house,” said analysts led by Drew Crum.
With this latest acquisition, Stifel thinks a Mattel Inc./Hasbro deal is “an unlikely event, at least over the next few years.”
Stifel rates Habro stock hold with a $107 target price.
Mattel /zigman2/quotes/209819189/composite MAT -1.77% narrowed its quarterly losses in the most recent quarter, and reported a sales gain to $860 million. Shares were down 6.9% in Friday trading after the deal was announced. Mattel stock has fallen more than 38.7% over the past year.
Hasbro shares were also down nearly 9% on Friday, though that stock has gained 3.1% in the last 12 months.
Entertainment One stock, on the other hand, soared 32% in Friday trading, exceeding the £5.60 per share purchase price. That stock is up 61.3% for the past year.
The S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.47% is up 1% over the last year.
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While SunTrust Robinson Humphrey analysts, like other research groups, see the value of the Hasbro/Entertainment One deal, they also see possible negative outcomes.
“[T]he transaction is not without potential risks as Hasbro paid a healthy multiple and is taking on significant leverage during a time when balance sheets are coming under added scrutiny,” a SunTrust note said.
SunTrust rates Hasbro shares hold with a $118 price target.