Hasbro agreed to spend $4 billion (Dh14.6bn) to buy Entertainment One, the studio that makes the Peppa Pig and PJ Masks children's shows, to gain a foothold in media rather than just licensing content.
The US toymaker will pay £5.60 per share in cash, 26 per cent more than Thursday’s closing price. Listed on the London Stock Exchange, Entertainment One shares surged by as much as 31 per cent on Friday to an all-time record level.
The deal, which would be Hasbro’s largest, marks a major media expansion of the toymaker behind the Monopoly board game and products such as Nerf and G.I. Joe. Expected to close by the end of this year, the deal would give the company Entertainment One’s scripted and unscripted TV production and development capabilities, which include animated and live action shows.
Hasbro has been a driving force in turning toy properties like Transformers into entertainment, but until now, it has mostly had to license its characters to studios to make films, said John Tinker, an analyst for Gabelli & Company.
“This can take their business to another level,” he said.
And after years of looking for an entertainment company to buy, including dalliances with Lions Gate Entertainment and DreamWorks Animation, Hasbro has finally locked up a deal that equips them to make larger films, he added.
The decline in the British pound made the valuation of Entertainment One more attractive, and the deal comes just days after Hong Kong’s Li family agreed to pay $3.3bn for UK pub operator Greene King.
The acquisition also expands Hasbro's global reach, by adding a major international brand to its portfolio. Peppa Pig is a global success, with big viewership in China, and new brand Ricky Zoom has the makings of a hit, too, Mr Tinker said. About half of Entertainment One's revenue comes from outside the US.
“We see opportunities for emerging markets. It’s also heartening to see that eOne has gotten great traction in markets like China for Peppa,” Hasbro chief executive Brian Goldner said in a call with analysts following the deal’s announcement. He added the tie-up gives the company “a real opportunity for a beachhead that can go in China for many years to come”.
Hasbro, the world's largest toy maker in terms of stock market value, plans to plug these characters into a brand-building infrastructure that has turned dormant properties like My Little Pony into massive revenue generators.
Hasbro shares fell 4 per cent to $109.80 at 4:44 pm (ET) in late trading in New York. The stock has gained 41 per cent so far this year.
Hasbro executives said share buy-backs will be halted and that cash will instead be allocated to paying down debt. The company will maintain its dividend programme.
Chief financial officer Deborah Thomas said the company wants to keep its investment grade rating and will look to finance the deal via term loans, bonds and proceeds from an equity offering of $1bn to $1.25bn.