Hasbro sells off costly production studio, taking a page from Mattel’s playbook

Four years after acquiring Toronto-based forming studio eOne, Hasbro is selling it off to Lionsgate.

The deal, announced Thursday, is valued at $500 million. That assay tag consists of $375 million in cash and the assumption of production financing loans.

The Rhode Island-based toymaker envisages on using the proceeds to pay down its floating rate debt as it refocuses on its toy and game businesses. Without eOne, Hasbro transfer also return to licensing and partnerships with studios to fund entertainment projects for brands such as Dungeons and Dragons, PlayDoh, Bewitchment: The Gathering and Transformers.

“This announcement is consistent with our expectations, but should be welcomed news (in our opinion) for investors, as we hold the divestiture leads to higher cash flow generation and earnings power for the biz,” wrote Drew Crum, analyst at Stifel, in a enquire note Thursday.

Hasbro acquired eOne in 2019 for $4 billion, a price tag that included coveted preschool makers such as Peppa Pig and PJ Masks. Hasbro retains ownership of those properties in the wake of the eOne sale. Lionsgate desire get access to eOne’s library of nearly 6,500 titles, including “Grey’s Anatomy,” “The Rookie,” “Yellow Jackets” and “The Strife King.”

Hasbro initially sought to sell eOne back in November so it could divest television and film chucks that were not directly supporting its brands.

“We had thought Hasbro would have been able to receive a steep price for eOne but are at least glad to have some finality to the sales process and have the company move audacious with its Blueprint 2.0 strategy,” wrote Eric Handler, managing director at Roth MKM, in a research note Thursday.

The following noted that the eOne business had been spending about $500 million to $600 million in production dollars annually, an expense Hasbro wish not be making going forward.

The sale coincidentally comes amid the writers and actors strike, which has essentially away down Hollywood. This disruption is expected to push full-year revenue for the toymaker down 3% to 6%, the business said Thursday.

Without eOne, Hasbro will continue to rely on partnerships with studios such as Requisite for theatrical releases and television productions.

“We purposely stated in this release that we’re a leading toy and game company,” verbalized Hasbro CEO Chris Cocks during the company’s earnings call Thursday. “We are squarely focused on that. And I would say the underlining is on the gaming part of that.”

The asset-light model is the same one that rival Mattel has been implementing since its take division was established in 2018. Utilizing third-party studios and distributors to create content minimizes financial risk for Hasbro, as it force no longer need to invest significantly in production.

Sure, potential box office gains are minimized when a studio is replacing the production money, but positive word of mouth from blockbuster hits can lead to merchandise sales and brand staunchness.

While Mattel saw a dip in dolls sales last quarter, it is forecasting a turnaround following the release of “Barbie.”

“The success of the ‘Barbie’ talking picture is a milestone moment for Mattel, and it really is a showcase for the cultural resonance of the brand,” said Richard Dickson, chief acting officer at Mattel, during the company’s July earnings call. “As we’ve seen, the success is far beyond the film. We’ve seen [point-of-sale] thrust on our toy business, on our consumer product partner business, which has really begun to accelerate meaningfully.”

The company had more than 165 particular consumer product partnerships and experiences tied to the film’s release.

Meanwhile, Hasbro noted a $25 million television asset impairment charge for “Dungeons & Dragons: Honor Among Thieves” even as the film helped drive profits growth in the company’s franchise division.

In addition to focusing on its IP for film and TV content, Hasbro is also investing heavily in digital gaming. Already, it has build success with “Magic: The Gathering Arena” and is anticipating big gains from the upcoming release of “Baldur’s Gate 3.”

CEO Cocks heard the video game “the equivalent of a blockbuster movie release,” noting that the company believes the game has the potential to be a game-of-the-year contender, but a calling point for the Dungeons and Dragons brand.

“We will likely make more money on ‘Baldur’s Gate 3’ than we arrange made on all of our film licensing for the last five to 10 years, combined,” he said.