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

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

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

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

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

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

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

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

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

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

Without eOne, Hasbro will continue to rely on partnerships with studios like Paramount for theatrical releases and television productions.

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

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

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

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’ movie is a milestone moment for Mattel, and it really is a showcase for the cultural resonance of the brand,” said Richard Dickson, chief operating 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] impacted on our toy business, on our consumer product partner business, which has really begun to accelerate meaningfully.”

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

Meanwhile, Hasbro noted a $25 million production asset impairment charge for “Dungeons & Dragons: Honor Among Thieves” even as the film helped drive revenue 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 found success with “Magic: The Gathering Arena” and is anticipating big gains from the upcoming release of “Baldur’s Gate 3.”

CEO Cocks called 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 rallying point for the Dungeons and Dragons brand.

“We will likely make more money on ‘Baldur’s Gate 3’ than we have made on all of our film licensing for the last 5 to 10 years, combined,” he said.