An activist investor wants to add new members to Hasbro’s board and is urging the toy company to make changes to its current business strategy, including splitting off its lucrative Wizards of the Coast unit, according to a Wall Street report Newspaper.
Alta Fox Capital Management, which has a 2.5% stake worth about $325 million, wrote a letter to Hasbro shareholders appointing five directors and urging the company to replace its “master plan of brand” through a plan focused on growing profitability across its consumer products and entertainment divisions, CNBC confirmed.
The letter suggests that the spinoff of Wizards of the Coast and digital games, which includes franchise brands like Dungeons and Dragons and Magic: The Gathering, will boost Hasbro’s stock value by $100.
Hasbro stock closed at around $97 per share on Wednesday, down about 23% from the all-time high of $126.87 per share reached before the pandemic and before the acquisition of Entertainment One (eOne).
Alta Fox argues that Hasbro can double its valuation by spinning off Wizards, which it says has a different growth, margin and valuation profile than other segments of the company. It also aims to replace Hasbro’s current brand building strategy, a plan put in place by the company’s late CEO, Brian Goldner, who passed away suddenly last October.
This strategy uses storytelling to drive toy sales. Under Goldner, Hasbro successfully expanded beyond toys and games and into the television, film and digital games space. It uses its toy brands like Transformers and My Little Pony to fuel entertainment content and then that entertainment content to fuel toy sales. The company is currently producing a Dungeons and Dragons movie and TV show through eOne.
He also used these brands for publishing, clothing and accessories.
“Hasbro communicates regularly with its shareholders as part of its robust shareholder engagement program and welcomes constructive feedback,” Hasbro said in a statement to CNBC.
Hasbro said it has met with Alta Fox and plans to review its applicants “in due course.”
Alta Fox’s letter to shareholders comes a week after the company reported a significant increase in fourth-quarter earnings, but said it does not expect robust growth over the next few years.
Deborah Thomas, the company’s chief financial officer, said on an earnings call that while the toy and game industry has seen above-trend growth over the past two years, the toymaker doesn’t expect for it to continue, saying he expects the industry to slow down. or decrease over the coming year.
Also of note, Hasbro has a new CEO starting February 25th. Chris Cocks, the former president of Wizards of the Coast, takes the reins from interim CEO Rich Stoddart, who served in the role after Goldner’s unexpected passing. Analysts have speculated that Hasbro may intentionally set its goals low for the next few years as Cocks settles into his new position.
Additionally, Hasbro is considering the impact of the pandemic on its film production. His latest movie “Transformers” has been delayed until 2023, resulting in delays to ticket sales and product lines. Also, Hasbro was the company that held the Disney Princess license and lost out to Mattel.
Yet despite pandemic headwinds, including global supply chain disruptions, Hasbro reported revenue rose 17% to $2.01 billion in the crucial holiday quarter, above analyst estimates of $1.87 billion.
Hasbro’s toy division still accounts for 62% of its revenue, or about $3.98 billion in 2021. However, Wizards of the Coast and digital games are growing in importance, which account for $1.28 billion in revenue, or 20% of the company’s total. Entertainment accounted for 17.9% or $1.15 billion.
“The board of directors and management team believe Hasbro is on track to deliver sustainable growth for shareholders,” the company said.
Hasbro’s new CEO has been part of the Hasbro team since 2016, working primarily with the company’s Dungeons and Dragons, Magic: The Gathering and Duel Masters franchises. Under Cocks’ leadership, Wizards of the Coast has become one of Hasbro’s biggest revenue generators, having more than doubled since he took the helm.
“Mr. Cocks’ extensive omnichannel experience, proven ability to build and nurture winning brands, and proven track record uniquely position him to accelerate Hasbro’s brand plan for supercharged growth while continuing to deliver strong returns to shareholders,” the company said.