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Will DreamWorks Really Be Acquired by Hasbro?

Hasbro_logoHasbro Inc. (NASDAQ: HAS) is reportedly in talks with DreamWorks Animation SKG Inc. (NASDAQ: DWA) for a potential buyout. The deal would consist of Hasbro paying a mix of cash and stock, although a price has not been determined yet.

This round of reports is not the first time that DreamWorks has supposedly been courted for a potential buyout in recent memory. Japanese telecom giant SoftBank attempted to buy out DreamWorks in September but negotiations fell through.

The previous offer from SoftBank was reportedly $32 per share, which would value DreamWorks at $3.4 billion. This offer came after the movie studio posted two underwhelming quarters and had fallen roughly 37% on the year. It is worth noting that SoftBank’s offer at that time was a 39% premium from the closing price of $22.36, before the news broke.

Multiple media outlets reported that Jeffrey Katzenberg, CEO of DreamWorks, was asking for over $30 per share in this deal. Speculatively, this seems at least somewhat reasonable on the surface, if you consider that the previous offer from SoftBank was supposed to be in that same ballpark.

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As of 11:00 a.m. Eastern on Thursday, neither company had made any formal comments confirming nor denying the reports of this would-be merger. Until a deal is confirmed or denied, we will treat this as a rumor. The Hollywood news website Deadline.com was the first to report on the merger talks:

DreamWorks Animation is deeply engaged in two potentially game changing negotiations that could transform the company — including one with Hasbro to forge a family entertainment powerhouse to be called DreamWorks-Hasbro. The other talks are with Hearst to turn DWA’s AwesomenessTV into a joint venture. We’re told that a DWA and Hasbro deal is at least 60 days off, if it happens. But the two companies are said to have agreed that Jeffrey Katzenberg would chair the combined operation.

Upon this news, shares of DreamWorks shot up about 17% to $26.18 in the first two hours of trading. The stock has a consensus analyst price target of $21.50 and a 52-week trading range of $19.20 to $36.01. The market cap is just over $2 billion.

However, Hasbro shares dropped 5% to 54.52 in the first two hours of trading. The consensus analyst price target is $62.00, and the 52-week trading range is $47.48 to $58.41. Hasbro has a market cap of nearly $7 billion.

What the market is telling Hasbro is that there could be some risk here in a toymaker acquiring a movie studio. It may seem like a natural fit, but it could put other toy relationships based on movies at risk under some arguments.

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