Coverage: Hasbro bidding for DreamWorks

The maker of some of the most popular children’s toys is now looking to purchase the studio that produces some of the biggest hits for the age group.

The Wall Street Journal story by Dana Cimilluca, Erich Schwartzel and Paul Ziobro had these details:

Hasbro Inc. is in early talks to buy DreamWorks Animation SKG, in a deal that would bring an animation studio that just recently began diversifying beyond the big screen under the fold of a major toy maker, according to people familiar with the matter.

A combination of the two companies could accelerate efforts at each to move beyond their core businesses.

DreamWorks Animation has expanded into consumer products in recent years but lags behind Walt Disney Co., and Hasbro had just changed tack on its entertainment business, selling off some of its stake in the Hub cable network with Discovery Communications Inc.

Hasbro, which has been contemplating such a deal for years, has clout with big retailers that DreamWorks could benefit from, too, one person familiar with the talks said.

News of the possible merger comes about six weeks after reports emerged that the Japanese telecom giant SoftBank Corp. was in talks to acquire the animation studio. However, those talks cooled shortly after reports first surfaced.

Hasbro also recently launched its own film label, Allspark Pictures, with movies based on its toy brands My Little Pony, Jem and the Holograms already in the works.

Matthew Garrahan wrote for The Financial Times that the deal was a 35 percent premium over DreamWorks closing share price:

DWA and Hasbro have agreed the basic outline of a deal with the price likely to exceed $30 a share – a 35 per cent premium to DWA’s closing price on Wednesday – according to a person close to the situation. The company has a market capitalisation of $1.9bn.

However, the person cautioned that discussions were at a preliminary stage.

The prospective deal would combine DWA’s Hollywood production assets and movie library with a toy and consumer products group that has a rich library of intellectual property.

Hollywood studios have plundered toy brands for movie ideas in recent years: some, such as Transformers, have become profitable franchises, generating billions of dollars, while others, like Battleship, were box-office flops.

DWA was spun out of DreamWorks, the studio started by David Geffen, Steven Spielberg and Jeffrey Katzenberg, in 2004. Mr Katzenberg, DWA’s chief executive – and one of US President Barack Obama’s biggest fundraisers – has actively sought a buyer on multiple occasions over the past few years.

Bloomberg’s Anousha Sakoui and Lucas Shaw pointed out that Hasbro toys have inspired several pictures:

“Transformers: Age of Extinction” is the fourth Paramount Pictures film based on the Hasbro toys. It has generated $1.09 billion at the global box office. The company makes the board game that was turned into “Ouija,” a Universal Pictures film that opened this month.

Paramount, part of Viacom Inc.,. has released two films based on the company’s G.I. Joe toys that have taken in more than $678 million at the global box office, according to Box Office Mojo.

DreamWorks Animation, which has previously looked for a buyer, expanded its TV business and acquired Awesomeness TV, an online video network, while forming a partnership in China that includes live entertainment. Those efforts haven’t grown enough to offset film write-offs that hurt the stock.

Variety’s Marc Graser pointed out that DreamWorks CEO was just looking to make a deal and has been shopping around for one:

The discussions — as well as other potential investments in DreamWorks from Japan’s Softbank and China’s Alibaba — in recent months signal that DWA-chief Jeffrey Katzenberg is clearly looking for a partner with whom he can restructure a company that has recently struggled at the box office with a string of misses with “Rise of the Guardians,” “Turbo” and “Mr. Peabody & Sherman.” “How to Train Your Dragon 2″ is one of its few hits of late. DWA’s next film is “The Penguins of Madagascar.”

The timing of the merger talks come a decade after DWA became a publicly traded studio, and as Katzenberg has been aggressive in expanding the house that “Shrek” built into other areas — including television, digital, consumer products, live entertainment — so that its bottomline doesn’t have to solely rely on the box office.

Doing that, of course, has made DWA more attractive to investors.

And that’s good news for Katzenberg, since he’s looking to make a deal. It makes sense to build a franchise around children’s entertainment. The ability to package movies, TV shows, toys and other merchandise means fewer disputes over content deals and revenue sharing. On paper, it looks like a great idea that will bring value to shareholders in the combined company, but integration and other merger-related issues will likely determine the ultimate success of the potential deal.