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Activist Investors & Hasbro; What Are the Stakes?
Stock Analysis & Ideas

Activist Investors & Hasbro; What Are the Stakes?

Toymaker Hasbro, Inc. (HAS) has seen its share price slide 12.2% so far this year, along with rising activist investor action.

This week, activist investor Ancora Holdings, which has a 1% stake in Hasbro, teamed up with Alta Fox to pursue a complete or partial exit from Entertainment One, which it acquired in 2019 for about $4 billion. The activist also wants Hasbro to replace directors on its board.

Alta Fox Capital Management

In February this year, Alta Fox revealed a 2.5% holding in Hasbro. It made five nominations to the company’s board and also asked it to consider spinning off its Wizards of the Coast unit.

Ancora supports the replacing of Hasbro’s directors with Alta Fox’s nominees. Further, while Ancora also wants Hasbro to find alternatives for Wizards of the Coast, the activist thinks proceeds from the sale of Entertainment One could be put to use elsewhere.

First Quarter Results

Hasbro’s recent first-quarter performance was a mixed bag, with the top line of $1.16 billion coming in ahead of expectations. Earnings per share of $0.57 missed estimates by $0.07.

Chris Cooks, who stepped in as the CEO of Hasbro on February 25, commented, “We began a thorough review of our business with a theme of focus and scale. We are leaning into our strengths and greatest growth opportunities, including in gaming, multi-generational brands, and direct to consumer.” The annual shareholder meeting is expected to be held on June 8.

After the Q1 results, the Hasbro board issued a letter to shareholders noting that Alta Fox’s campaign began shortly after Hasbro’s long-time CEO Brian Goldner passed away and is a distraction to Hasbro’s new CEO.

The letter also highlighted that Alta Fox’s five director nominees, “Lack any relevant industry expertise” and the activist is attempting to “push an agenda to spin off the Wizards of the Coast business…We believe this proxy fight is ill-timed, Alta Fox’s agenda will not create value for shareholders and its nominees offer no beneficial experience to Hasbro’s Board or the company.”

Significantly, the company has poured more than $1 billion into Wizards in the last five years, and a spin-off may not create shareholder value, according to the board.

Alta Fox’s Letter to Shareholders

Alta told shareholders, “Shareholder-driven change is needed at the 2022 annual meeting to mitigate further value destruction under Hasbro’s arrogant, insular and ineffective board.”

Additionally, while questioning the Hasbro board’s entrenchment agenda and “unwillingness” to embrace shareholder input, the activist also urged investors to elect its three-member slate to “Inject capital allocation, strategic planning, and transformative expertise into the Boardroom.”

Analyst’s Take

Jefferies analyst Stephanie Wissink has reiterated a Buy rating on the stock alongside a price target of $115.

Overall, the Street has a Strong Buy Consensus rating on Hasbro based on six Buys and two Holds. The average Hasbro price target of $108.50 implies 21% upside potential for the stock.

Closing Note

All eyes will be on June 8, when Hasbro shareholders will vote on the competing director slates. While Alta was already turning up the ante on Hasbro, the entry of Ancora further exacerbates the situation for Hasbro.

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