Hasbro (HAS) shares surged higher Thursday following a move by activists investors to nominated five new board members and push for major changes at the toymaker following the loss of a lucrative licensing contract with Walt Disney (DIS) to rival Mattel (MAT).
Alta Fox Capital Management, which holds a 2.5% stake in the $13.4 billion company, says it sees a path to Hasbro shares rising to $200 each -- nearly double its current levels -- if the group puts a new strategy in place and separates its profitable 'Wizards of the Coast' gaming operation.
Alta Fox cited Hasbro's recent muted 2022 earnings forecast, and it's comparison to a stronger-than-expected outlook at Mattel, while adding that the Hasbro board is paid more in annual compensation than at Apple (AAPL).
"We have attempted to collaborate with Hasbro, but it continues to cling to its failed “Brand Blueprint” strategy. We cannot stand idly by as Hasbro’s Board makes unforced errors in capital allocation, corporate governance and investor communication," Alta Fox said in a letter to shareholders published Thursday. "We believe the Board’s intransigence and missteps are eroding the market share and prominence of one of America’s most iconic companies."
"If corrective action is not taken in the near-term, we fear there will be an irreversible impairment of value at Hasbro." the letter added.
Hasbro shares were marked 2% higher in late afternoon Thursday trading, compared to a 1.9% decline for the S&P 500 benchmark, to change hands at $98.96 each.
Wizards of the Coast generated a 42% increase in 2021 revenues, hauling in $1.29 billion, a tally that means it's contributing around half of Hasbro's annual earnings, Alta Fox said. Hasbro said the division had a profit margin of 42.5%, with sales powered by its 'Magic: The Gathering and Dungeons & Dragons' franchise.
"As an independent business, we believe WOTC would be worth more than $100 per share today," Alta Fox said. "We also anticipate it would be one of the most exciting and valuable specialty gaming businesses in the world, particularly if it were to refocus investment on core intellectual property and eliminate loss-driving, speculative bets on non-core franchises."
Earlier this month, cautioned that inputs costs and freight rate hikes would extend through most of the year, adding it will likely increase toy prices starting in the second quarter, following stronger-than-expected fourth quarter boosted by a rebound in its entertainment business.
Hasbro's movie-related merchandise sales also got a boost from its Marvel portfolio, thanks in part to the success of Spider-Man: No Way Home "and the new animated show Spidey and his Amazing Friends", the company said.
"We expect the Wizards and Digital Gaming segment to grow in the mid single digits. We continue to invest to grow this high-return business over the near and long term," interim CEO Rich Stoddart told investors on a conference call on February 7.
Last month, however, that unit took a hit from the loss of its contract to sell merchandise inspired by Walt Disney characters to rival Mattel.
The Wall Street Journal first reported that Mattel, which lost the licensing rights to Disney-inspired toys to Hasbro in 2016, will begin selling the items next year, with a lineup that includes characters from the blockbuster 'Frozen' movie franchise.
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