Analysts, Investors Get Their Wish as Hasbro Purchase of DreamWorks Looks Less Likely

When news broke last week that Hasbro (HAS) was in talks to purchase DreamWorks Animation (DWA), analysts all but begged the toy maker to say it ain’t so.

DreamWorks Animation/Associated Press

MKM Partners’ Eric Handler said he had significant reservations about a potential acquisition:

This combination makes no sense to us at all. There is no doubt that Hasbro wants to turn a number of its franchise properties into feature films, but its risk profile would substantially change entering into the volatile movie production business with a company that has not generated positive FCF in several years and has had trouble making profitable animated films. In addition, a business transformation of this magnitude could have negative implications for Hasbro in its relationship with Disney (DIS).

BTIG’s Richard Greenfield and Brandon Ross wrote “Dear Hasbro, Why You Should Not Buy DreamWorks Animation.” They continue:

We expect 2015 to be a very tough year for DreamWorks Animation after an already disappointing 2014. We can understand why DreamWorks is in a rush to sell; we just can't see why Hasbro or anyone else would be in a rush to buy. If DreamWorks’ track record of creating original IP, or transforming existing IP, was notably better, a transaction with Hasbro could make more sense. Families now have access to a tremendous amount of content available anytime/anywhere; in turn, the bar to getting families to pay to see your movies in the theater or wanting to own the content at home is moving higher and higher. While film quality was always critical to success, it is becoming even more important in today's increasingly access-based media landscape. DreamWorks’ content is simply not good enough to warrant an acquisition anywhere near the current valuation. And it is certainly not worthy of a highly dilutive deal for Hasbro shareholders.

It looks like the analysts got their wish as reports indicated that a DreamWorks/Hasbro hookup is looking far less likely. Investors in Hasbro seem relieved too. Its shares have gained 4% to $56.19 at 12:47 p.m., even as DreamWorks has tumbled 14% to $22.31.