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Feature Report: The Back Story of Hasbro’s Boardroom Victory Over Alta Fox

Against those claims, the proxy advisory firms Institutional Shareholder Services and Glass Lewis backed Hasbro’s board in the shareholder battle, although ISS did say the hedge fund has zeroed in on valid concerns and some change may be needed. In particular, Alta Fox criticized how the company allocated capital and its 2019 acquisition of Entertainment One.

ISS even recommended shareholders withhold their votes for Edward Philip, who has served on Hasbro’s board for 20 years, to signal their discontent with the company’s progress in certain areas, and particularly with its stock price performance. Valued at $12 billion, Hasbro’s stock price has fallen 19.5% over the past five years, while the S&P 500 has climbed 70%.

However, a closer look at Hasbro’s performance does give cause for optimism, and for that reason both ISS and Glass Lewis backed the current board.

Glass Lewis recommended shareholders re-elect all 13 company directors at the June 8 vote, saying, “The preponderance of the evidence validates Hasbro’s strategy and business model.” ISS said there was reason for “optimism” with Hasbro’s new CEO, Chris Cocks, who used to run the Wizards of the Coast and Digital Gaming unit and was appointed in February after the previous CEO died. It said that spinning off the unit Cocks once ran is not an “appropriate solution at this time.”

ISS did not say directors should be removed, but did go so far as to say some of the longer serving directors should have retired.

By contrast with Hasbro, primary competitor Mattel sits at an $8.5 billion market cap, but also showed an 8.9% increase in stock price over the same five-year period. Again, the devil is in the details, and for Hasbro, a lot of the issues with long-term share price were due to a massive reorganization of the company, but more specifically, to the impact of the pandemic on global logistics.

Prior to the pandemic, Hasbro’s share price rose from $107.90 on June 9, 2017 to $123.67 on Aug. 2, 2019. When the pandemic hit China in early 2020, and then showed up in North America and Europe in March of 2020, Hasbro’s stock went into freefall, dropping $46.20 by March 20 of that year.

Since then, Hasbro’s revenue performance has pulled the stock back up to a high of 102.78 in January this year, before falling again during the general and ongoing selloff in the global markets.

Mattel saw a similar selloff through March, but the big difference was that Mattel did a better job weathering the logistic impacts of the pandemic due to work done earlier on strengthening its supply chains. Mattel’s stock also recovered since that point, with the major difference that, unlike Hasbro and most other public companies, Mattel has not seen a sell off during the current financial crisis.

Nevertheless, Mattel is definitely an outlier over the past six months of stock market performance, a time when even mighty Apple has suffered a significant decline in its valuation.

Former CEO Brian Goldner completed the restructuring of Hasbro before passing away in October 2021 after a battle with cancer.

From Hasbro’s perspective, the company has gone through a significant restructuring since 2008, primarily under former CEO Brian Goldner, who transformed Hasbro from a toymaker to a global entertainment conglomerate. Prior to the pandemic, Hasbro was beginning to see the fruits of that labor, and it’s worth looking back to see what Hasbro was doing, and how it will affect the future of the company over the long term.

Goldner joined Hasbro in 2000 and was quickly recognized as a visionary in the industry. He was appointed CEO in 2008 and became Chairman of the Board in 2015. Over the past six years in particular, Goldners set about a complete transformation of Hasbro, that would also influence every aspect of toy licensing around the world.

At the time of his appointment as CEO, Hasbro was really focused on its traditional role as a toy and games company, but Goldner was instrumental in transforming Hasbro into a global play and entertainment leader. He was the architect of what Hasbro now calls a “Strategic Brand Blueprint” to create the world’s best play and storytelling experiences. Goldner was among the visionaries in the industry who saw that storytelling was an essential part of creating toys and games that people care about. As a result, he completely restructured the company so that production of TV series, films, and live experiences became an integral part of Hasbro’s operations.

A major aspect of that restructuring was the purchase of Entertainment One, or ‘eOne’, which indeed was an expensive transaction that created a drag on the company’s balance sheet. However, it also allowed Hasbro to increase sales and particularly its licensing revenues in ways that would have been impossible prior to 2008.

“Through his tireless work ethic and unwavering focus, he expanded the Company beyond toys and games into television, movies, digital gaming and beyond, to ensure Hasbro’s iconic brands reached every consumer,” the company said in a statement when Goldner died in October 2021.

In February that same year, Goldner and his team also completed a wholesale restructuring of Hasbro, streamlining the company into three reporting segments. Goldner said the company would now be divided into the categories of Consumer Products, including toys and games; Wizards of the Coast (Wizards) and Digital Gaming; and Entertainment.

“The integrated and assembled value of consumer products, Wizards and digital gaming, and entertainment is how we unlock the next level of return for our business and for our stakeholders,” said Goldner. “We have simplified our structure to maximize our growth and provide a clearer view to the drivers of Hasbro revenues, profit, margin, and cash generation.

“Our Brand Blueprint thrives as we create value from these three areas of our business,” Goldner added. “We are building scale behind them to drive more profitable revenue and meet the needs of our consumers and audiences with innovation and creativity for a modern era.”

Hasbro is now a major player in the digital gaming market, and through the acquisition of Entertainment One, or as it’s often known, eOne. That new division was formerly a successful Canadian studio involved in the acquisition, distribution, and production of films, music, and television series.

Among the many successful projects eOne was involved with, it developed the rapidly growing Peppa Pig franchise, PJ Masks, and was heavily involved with Steven Spielberg’s Amblin Entertainment.

Entertainment One was acquired by Hasbro on Dec. 30, 2019, and the partnership was quick to bear fruit. Peppa Pig, for example, has become one of the world’s top toy brands, and in February 2021 Hasbro announced a deal that will see Merlin Entertainments building an entire Peppa Pig theme park as part of the massive LEGOLAND resort in Florida.

Unlike Mattel, which managed to overcome supply chain issues and returned to profitability in 2020, Hasbro did not earn an EBITDA (earnings before interest, taxes, depreciation, and amortization) profit in 2020, but sees its investments in entertainment and digital as strategies that will pay off handsomely in 2021 and beyond.

“Our expectation is that we return to growth in revenues, earnings and EBITDA in 2021,” said Goldner at the time, and in fact, that is exactly what happened.

In July, just months after Goldner completed the restructuring of Hasbro, the company absolutely smashed its revenue targets for Q2, sending the company’s stock soaring.

“Hasbro delivered an excellent second quarter, with revenues up 54% versus the second quarter of last year and 9% versus pro forma second quarter 2019,” said Goldner, noting all three reporting segments contributed to the huge gains. The Consumer Products segment grew by 33% over the same period in the previous year, while the Entertainment segment grew by 47% Year On Year. The already successful Wizards segment absolutely exploded, posting an almost unbelievable YoY revenue increase of more than 200%.

After Goldner passed away, the company looked to Chris Cocks, the so-called “head wizard” at the Wizards of the Coast segment, which was by far the best performing business unit within Hasbro. Cocks has only been in the CEO’s chair since January this year, and from the perspective of Hasbro, his long-term impact on the company’s stock should not be measured by the declines in 2022, which occurred during a broad-based decline in global markets.

Hasbro’s Peppa Pig is another bright spot in the company’s fortunes, securing a raft of licensing deals globally, and even seeing the creation of a Peppa Pig Theme Park.

In the year-to-date, Hasbro’s stock has fallen 13.98%, as compared to the 14,0% decline in the overall S&P 500 index. In other words, this year Hasbro has performed on par with the S&P.

While Alta Fox continues to call for change at Hasbro, and may eventually get it, those in the licensing industry may have a very different perspective. While investors may see the short term pain in stock losses as not being worth the long term gain promised by Hasbro’s arduous restructuring process, licensing partners look more at the value of the intellectual property.

In that sense, as TLL has reported in prior features, Hasbro has significantly improved its IP, particularly for Dungeons & Dragons, Magic: The Gathering, and high profile properties such as Peppa Pig. As well, Hasbro has leveraged its new entertainment capacity to help promote many of its legacy properties, which have generally done very well even during the pandemic, when the company’s stock fell.

Special Report: The Future of Hasbro

 

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