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After Hasbro and SoftBank, the DreamWorks Valuation Conundrum

Talks of a potential acquisition of DreamWorks Animation SKG Inc. (NASDAQ: DWA) by Hasbro Inc. (NASDAQ: HAS) seem to have fallen through. This appears to be trend for DreamWorks. It previously was in acquisition talks with SoftBank of Japan, which ended with the same result.

DreamWorks was reportedly asking both Hasbro and SoftBank for over $30 per share for its common stock, but these two potential acquirers seemingly would not value the company at that level. The consensus analyst target price for DreamWorks is $21.50, with the lowest analyst call being $16.

To ballpark the valuation that DreamWorks is asking for, consider 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 level of interest at that time was a 39% premium from the closing price of $22.36, before the news broke.

DreamWorks currently has a market cap of nearly $2 billion following the most recent drop in the share price.

Shares of DreamWorks fell nearly 15% to $22.71 at the opening bell Monday on this news. Conversely, Hasbro’s stock rose about 5% at the same time. Speculatively, the market appears to be telling Hasbro it made the right choice.

The question remains about whether DreamWorks can or will find another company to buy it out. Maybe that should be a price-sensitive notion rather than an absolute notion. The risk of a company shopping itself around is that it can potentially drive the price down further as other companies start to realize what SoftBank and Hasbro already have. Another risk is that it can take management’s eye off the ball when it comes to day-to-day operation and execution.

DreamWorks has a 52-week trading range of $19.20 to $36.01.

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