DreamWorks Animation and Hasbro End Merger Talks (Exclusive)

Paul Jeffers
Jeffrey Katzenberg

Shares of the toymaker fell when Wall Street learned of a potential deal

Hasbro has called off merger negotiations with DreamWorks Animation, sources tell The Hollywood Reporter.

The deal chatter, which became public on Wednesday, appears to have been derailed in part by the performance of Hasbro's stock and potentially the high price sought by DreamWorks Animation CEO Jeffrey Katzenberg. Shares of the toymaker fell dramatically on Thursday after news of the negotiations broke.

Reached on Friday, DreamWorks Animation declined to comment.

Hasbro is the second major merger target for DWA in recent weeks. THR first revealed talks with Japanese giant Softbank in September, but those negotiations collapsed days after they became public.

DreamWorks Animation had been seeking $35 a share from Hasbro, but many Wall Street analysts deemed the price steep and said so in research notes published Thursday and Friday.

Investors apparently agreed, because a day after the merger negotiations were leaked — including the $35 per share price tag — shares of DreamWorks rose just 14 percent to $25.52, a hefty 37 percent below what the studio had been asking.

Hasbro shares on Thursday lost 4 percent, wiping about $300 million from its market capitalization, and the stock fell another 2 percent on Friday, apparently enough to scare the toymaker's board of directors from further negotiations.

In theory, a marriage of Hasbro and DreamWorks Animation made sense, given that the former has been looking to beef up its presence in TV and film while the latter has wanted to diversify its revenue stream in an effort to more consistently grow the company. Katzenberg famously said a year ago, in fact, that movies "are not a growth business," a sentiment that led to derision from his industry peers.

As desirable as properties like Shrek, Madagascar and Kung Fu Panda might have been to Hasbro, though, many on Wall Street said the toymaker has been breaking into TV and film well enough on its own. It not only controls toy brands such as Transformers and G.I. Joe, each of which are popular movie franchises, but it also has in the works a Fox movie based on the card game Magic: The Gathering, a Sony movie based on the Candy Land board game, plus others in various stages of development.

Among the analysts who were critical of the potential merger was Richard Greenfield of BTIG. "Dear Hasbro: Why you should not buy DreamWorks Animation," he titled a blog post on Friday.

"Unfortunately for DreamWorks Animation," Greenfield wrote, "the company's inconsistent creative output, and thus financial performance, makes it hard to understand why anyone would want to acquire the company at its current market valuation, let alone the $3 billion-plus valuation that management supposedly covets."

Email: Paul.Bond@THR.com

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