Hasbro Inc. (HAS) confirmed it had been 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 in a news release Thursday.
Shares of Hasbro rose 2.9% to $42.29 but in pre-market trading
had risen as high as $45.31. The previous 52-week high was
$43.39.
Hasbro did not name the private equity firm, but The Wall Street
Journal late Wednesday reported 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.
But Wedbush Securities called reports of buyout talks credible
and boosted its Hasbro price target to $52 from $46. Credit-ratings
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," White said.
Shares of Mattel Inc. (MAT), the world's largest toy maker, rose
1.6% to $22.70.
Hasbro has a market capitalization of about $6 billion. A
leveraged buyout of Hasbro, a Standard & Poor's 500 company
that owns the G.I. Joe, Transformers and Nerf brands, would mark
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 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," 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 space, with a price-to-earnings
multiple of about 12.5 times the firm's 2011 earnings forecast and
trading at 7 times enterprise value to Ebitda, or earnings before
interest, taxes, depreciation and amortization.
Providence Equity focuses mainly on media, entertainment and
communications investments, managing over $22 billion. The firm
recently sold one of its portfolio companies, cable operator
Bresnan Communications, to Cablevision Systems Corp. (CVC) for
$1.37 billion. The firm is based in Providence, R.I., just a few
miles from Hasbro's headquarters in Pawtucket.
Hasbro struggled earlier last decade but 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 big time, with the movie and the
sequel grossing over $1 billion dollars. The movies' success helped
spurred toy sales from $100 million a year to between $400 million
and $600 million. Hasbro now has its own office on the Universal
lot, a studio 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 (DISCA, DISCB) 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.)
-By Mary Ellen Lloyd, Dow Jones Newswires; 704-948-9145;
maryellen.lloyd@dowjones.com
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