Hasbro’s push into media shines light on other film and TV takeover targets

The days of Hasbro being known as just a toymaker are long gone. (AFP pic)

LOS ANGELES: Hasbro Inc’s US$4 billion agreement to buy the producer of “Peppa Pig” and other programs puts a spotlight on other media properties that may be for sale, including Metro-Goldwyn-Mayer and Lions Gate Entertainment Corp.

Future acquisition targets also could include Discovery Inc, AMC Networks Inc and Univision Holdings Inc “because of their relatively small caps,” according to Bloomberg Intelligence, which lists the soon-to-merge Viacom Inc and CBS Corp as a possible acquirer.

Film and TV producers have become more attractive takeover prospects, especially as media and telecom companies push into video streaming and prepare to battle Netflix Inc In March, Walt Disney Co plunked down US$71 billion for much of 21st Century Fox, while AT&T Inc paid US$85 billion for Time Warner in mid-2018.

Behind all of the M&A activity is a demand for popular films and TV shows that companies can pipe through the internet or through wireless networks.

Consumers today are spending more time streaming videos – and less watching programming from conventional TV networks.

“The key is brands and franchises,” said Robert Routh, who follows cable and entertainment stocks at FBN Securities.

Deal frenzy

Companies like Disney, AT&T and Comcast Corp are snapping up competitors and launching their own streaming services, while smaller players are bulking up with shows and movies they can sell to Netflix, Amazon.com Inc and the new companies crowding in.

In addition to producing kids’ shows such as “Peppa Pig” and “PJ Masks,” Entertainment One makes grown-up fare like “Designated Survivor,” a drama that aired on ABC and Netflix.

One challenge in pursuing smaller companies is that many have shareholders with significant or controlling stakes who have to be coaxed to sell.

CBS’s US$11.7 billion deal to merge with Viacom Inc combined two companies with the same controlling shareholder, Shari Redstone.

Cable TV billionaire John Malone holds a 28% voting stake in Discovery, while AMC Networks, owner of the “Walking Dead” TV series is controlled by the Dolan family.

Lion Gate, whose investors include Mark Rachesky and Malone, walked away from talks with Hasbro that involved a US$41 a share offer.

Shares of the studio, which made “The Hunger Games” films, now trade at less than US$11 – with a market value of US$2.27 billion.

MGM’s moves

Meanwhile, MGM Holdings Inc, which has been controlled by hedge funds since its exit from bankruptcy almost a decade ago, has been an acquirer.

In 2017, the owner of the James Bond spy movies bought out its partners in the Epix cable channel for US$1.03 billion.

A year later the studio purchased stock held by its departing chief executive officer for US$260 million, leaving Chairman Kevin Ulrich, CEO of Anchorage Capital Group LLC, in charge.

The price Hasbro paid for Entertainment One – amounting to 18 times earnings – was extraordinarily high, said Routh, the FBN analyst.

But the toymaker also said the acquisition would contribute to earnings right away, a surprise that suggests more deals may be in the works, he said.

“Everyone was shocked,” Routh said. “The multiple is quite high.”

Even so, shares of Entertainment One soared above Hasbro’s offer price on Friday, suggesting some investors may expect an even higher bid.

Transformers franchise

Hasbro’s purchase of Entertainment One shows interest can come from outside traditional media channels.

The company manufactures the Transformers line of toys, but it also co-produced blockbuster films based on those products.

Seven “Transformers” movies, all made with Viacom’s Paramount Pictures, produced US$4.85 billion in worldwide ticket sales. Their next project is set for October 2021.

But now the toymaker is diving in deeper, choosing to be a principal player in TV and moviemaking.

The company plans to make Entertainment One’s characters and content available across many platforms, including games and streaming services.

The company suggested there are opportunities in music, location-based entertainment and virtual reality.

Hasbro CEO Brian Goldner also sees Entertainment One – and its biggest star, Peppa Pig – as a beachhead in developing markets.

“It’s also heartening to see that EOne has gotten great traction in markets like China,” he said.