Hasbro Won’t Pursue Rumored Buyout

{mosimage}Another update from Wall Street Journal has it that Hasbro confirm that they were approached by a private-equity firm about a buyout, but they weren't interested. In a sense, this sparks a rethinking on the value of toy stocks, Mattel and Hasbro being the top two toy companies, respectively, and Hasbro's success with the live-action Transformers movie line.

Read the entire article at WSJ and discuss at our thread.

Hasbro Won't Pursue Buyout


Hasbro Inc. confirmed it was approached by a private-equity firm about a buyout, but the toy maker's board determined it wasn't interested in pursuing the transaction.

"It is not having any discussions regarding the sale of the company," Hasbro said Thursday in a news release.

Shares of Hasbro, which owns the G.I. Joe, Transformers and Nerf brands, were up 1.8% at $41.85 Thursday in late-morning trading on the New York Stock Exchange, but had risen as high as $45.31 in pre-market trading. The previous 52-week high was $43.39.

Hasbro didn't name the private-equity firm, but The Wall Street Journal reported late Wednesday that Hasbro was in preliminary talks with private-equity firm Providence Equity Partners to take the company private in a leveraged buyout.

The Journal, citing people familiar with the matter, said the status of the talks was unclear, adding that discussions had advanced over several weeks but could have come to a temporary halt given uncertainty in the markets.

Wedbush Securities called reports of buyout talks credible and boosted its Hasbro price target to $52 from $46. Credit-rating firm Egan-Jones, too, called a buyout "feasible."

Wells Fargo Securities said an LBO for Hasbro doesn't look likely, estimating a deal would have to be priced at about $48.60 a share, or $7.2 billion.

In any case, the news could spark a rethinking of valuations for toy stocks generally, Wedbush analyst Chris White told clients in a note.

"We have long argued that toy stocks were inexpensive, likely owing to modest secular growth prospects and low barriers to entry, but these alleged discussions surrounding Hasbro may be the catalysts to richer industry valuations," Mr. White said.

Shares of Mattel Inc., the world's largest toy maker, were up 14 cents at $22.48 in late-morning trading on the Big Board.

Hasbro has a market capitalization of about $6 billion. A leveraged buyout of Hasbro, a constituent of the Standard & Poor's 500-stock index, would be the year's largest private-equity deal.

Wedbush Securities said investor attention could turn quickly to Hasbro's only large competitor, Mattel, as a potential takeover candidate, though Mattel's larger size makes a deal less likely. Mattel's market capitalization at Wednesday's closing prices was about 34% larger than Hasbro's.

"However, Mattel currently sports the cleanest balance sheet it has had in years, which might invite a financial sponsor (or group of them) to consider a highly levered deal, should financing be available," Mr. White said. "But regardless of whether a deal for Mattel ever materializes, a higher valuation for Mattel shares seems plausible."

Hasbro shares have been trading near an all-time high, and have the highest valuation in the toy industry, with a price-to-earnings multiple of about 12.5 times the firm's 2011 earnings forecast and seven times enterprise value to Ebitda, or earnings before interest, taxes, depreciation and amortization.

Providence Equity, which manages more than $22 billion, focuses mainly on media, entertainment and communications investments. The firm recently sold one of its portfolio companies, cable operator Bresnan Communications, to Cablevision Systems Corp. for $1.37 billion. The firm is based in Providence, R.I., just a few miles from Hasbro's headquarters in Pawtucket.

Hasbro, which struggled in the past decade, has had strong performance recently, with earnings per share rising 30% a year in three of the past four years. Much of that gain came from Hasbro's effort to link its toys with movies.

Hasbro's chief executive, Brian Goldner, persuaded Hollywood to take a gamble on turning the company's Transformers line of toys into a movie. The gamble paid off handsomely, with the movie and the sequel grossing more than $1 billion dollars. The movies' success helped spur toy sales to between $400 million and $600 million a year, up from $100 million a year. Hasbro now has its own office on the lot at Universal Studios in Hollywood and more than 10 films in the works with different movie studios.

Hasbro, in recent years, has focused on building a multimedia presence around its toy brands, partnering with Discovery Communications on the Hub, a cable channel that will feature programs based on toys such as G.I. Joe. Hasbro sank $350 million into the joint venture with Discovery and pledged an additional $125 million in product sales over the next three years.

Hasbro had more than $4 billion in annual 2009 sales and $1.4 billion in long-term debt.

Last month, Toys 'R Us Inc. announced plans to raise $800 million through an initial public offering. The company was taken private in 2005 by a group of private-equity firms including Bain Capital Partners, Kohlberg Kravis Roberts & Co. and Vornado Realty Trust.

—Anupreeta Das, Gina Chon and Ann Zimmerman contributed to this article.

Write to Mary Ellen Lloyd at [email protected]