Analysts from KidsKnowBest and Michael, Evrensel and Pawar weigh in on what the US$4-billion deal means for both companies.
By Jeremy DicksonAugust 26, 2019
Nerf- and Power Rangers-maker Hasbro agreed to purchase Canadian indie producer/distributor Entertainment One (eOne) for US$4 billion on Thursday, but despite numerous reports on the merger, there isn’t lot of information on what’s next for this new media giant.
The acquisition is significant for Hasbro’s growth in family-oriented TV, movies and consumer products because the Rhode Island-based toyco will take ownership eOne’s entire film and TV production slate, which includes hit preschool IPs Peppa Pig and PJ Masks (pictured). In addition, Hasbro plans to move a significant portion of eOne’s toy business in-house; senior eOne execs are expected to join Hasbro’s team; and the toyco will gain control of eOne’s global network, which includes offices in Toronto, London, LA and Hong Kong, among others.
Hasbro’s big bet on eOne, which will close by the end of the year following regulatory approvals, came as a surprise to many industry analysts, including Pete Robinson, COO of UK-based children’s media specialist KidsKnowBest.
“The shock came from the fact that eOne was doing so well on its own in the kids and family space. [But] the deal actually makes a lot of sense,” says Robinson. “eOne has done such a great job producing hit show after hit show in kids TV and most of them have consumer product ranges.”
According to eOne, Peppa Pig generated US$110 million in revenue in the fiscal year ended March 31, up 20% from the year-ago period, while revenue for PJ Masks increased 39% to US$73 million. In retail, sales for Peppa Pig grew 6% to US$2.5 billion, while PJ Masks’ sales rose 10% to US$1.2 billion for the year ended March 31.
“Peppa isn’t slowing down that much, but it probably hit its peak so having Hasbro around to exploit it makes a lot of sense,” says Robinson.
As for the acquisition’s effect on competitors, namely Mattel, Robinson says reorgs may be afoot. “We’ll likely see some sort of major acquisition or shake up at Mattel within the next 18 months,” he says.
With its eOne deal, Hasbro plans to “market its IP in increasingly attractive new formats, including over-the-top (OTT) and premium platforms, music, location-based entertainment, AR and VR,” according to a statement from the company. To support this goal, Robinson says that Hasbro could tap eOne’s Toronto-based VR company Secret Location, which has developed a number of virtual reality films and gaming products geared toward kids, including learning app World of Peppa Pig.
“Hasbro could take some of eOne’s well-known brands, get them on the big screen and also sell across a suite of high-end or edtech products,” says Robinson. “Hasbro is really good at finding new tech, but it hasn’t always been quite as good at implementing tech into repeat sales.”
For Arthur Evrensel, a partner of business and entertainment law at Vancouver-based law firm Michael, Evrensel and Pawar, he sees the acquisition as a clear sign that Canadian companies are on the radar of major global companies, which need to bulk up in the increasingly competitive global environment.
“eOne has done a very good job of developing the brands they have acquired on the family and animation side,” says Evrensel. He adds that he is surprised by the price, but not bothered by it. “It speaks well for Canadian companies and I think people should be looking in the next year at companies like Boat Rocker and if they acquire more themselves or get acquired,” says Evrensel.
Here’s a breakdown of some key points of the acquisition:
What kids brands will Hasbro acquire? Upon the deal’s expected completion, Hasbro will own eOne’s entire film and TV production slate, including hit preschool IPs Peppa Pig and PJ Masks. It will also gain eOne’s latest kids properties Ricky Zoom and Cupcake & Dino: General Services. The former will make its US debut on September 9 on Nickelodeon, while the latter’s second season was recently picked up by Netflix. How will eOne be used for kids and family movies? On Hasbro’s investor call, CEO and chairman Brain Goldner said the toyco’s existing partnership with Paramount Pictures would continue. The companies jointly finance film and TV projects based on Hasbro brands and original concepts and Paramount handles worldwide distribution. Goldner said eOne would be leveraged to develop non-priority productions outside of Hasbro’s long-term Paramount deal. Hasbro and Paramount are currently supporting book-based CGI-live-action feature Clifford the Big Red Dog and post-apocalyptic teen movie Monster Problems.
What else will stay the same? eOne’s Canadian film and TV operations will remain as a separate Canadian-controlled unit within the combined business. According to a statement, this will ensure the operations will continue to meet Canadian control regulatory requirements in relation to TV and film production companies, to the continued benefit of the Canadian television and film production industry.
How will the executive teams be affected? According to Hasbro, top eOne execs have agreed to join the Hasbro team, but no names, such as president of family and brands Olivier Dumont, have been mentioned yet. Last month, SVP of global distribution and development Finn Arnesen left Hasbro’s studio arm Allspark after more than nine years. According to a company statement from Hasbro CCO and EVP Stephen Davis, Arnesen left to seek new opportunities. Allspark’s international distribution VP Nina Scales recently took over the role. Meanwhile at eOne, former Disney exec Kate Morton was named to the newly created role of director of content strategy at the company’s family and brands division in June. Based in London, Morton is tasked with developing and coordinating programming strategies for the global distribution of eOne’s linear and non-linear content. The hire followed the April departure of eOne’s global licensing EVP Andrew Carley, who was also based in London.
What are the terms of Hasbro’s acquisition? Hasbro plans to finance the acquisition of eOne, which trades on the London stock exchange, with the proceeds of debt financing and approximately US$1 to US$1.25 billion in cash from equity financing. eOne shareholders will receive US$6.80 in cash for each common share, which Hasbro says represents a 31% premium to its 30-day average price.
Has any company tried to acquire eOne before? Three years ago, UK TV group ITV attempted to buy eOne for US$1.3 billion. In a note sent to shareholders at the time, eOne said the proposal “fundamentally undervalues the company and its prospects.” ITV subsequently withdrew the proposal.
With files from Kelly Townsend and Elizabeth Foster