An activist shareholder has notified game maker/Hollywood producer Hasbro it is nominating five members to the company’s 10-member board of directors at the upcoming 2022 Annual Meeting of Shareholders to spur changes at the corporate level. Lionsgate vice-chairman Michael Burns currently sits on the Hasbro board.
Alta Fox Capital Management, the beneficial owner of approximately 2.5% of the outstanding shares of Hasbro, Feb. 17 issued a 100-page presentation outlining steps it claims can return value to Hasbro shareholders.
Specifically, Alta Fox contends Hasbro’s “Brand Blueprint” strategy initiated by late CEO Brian Goldner, who died last year following a seven-year battle against prostate cancer, has been ineffective and spurred “consistent misallocation” of capital resources.
The shareholder cites Hasbro’s $4.6 billion acquisition of Hollywood producer/distributor Entertainment One (eOne) in 2019 as both a “defining moment” and “greatest failure” for the game maker that has over the years forged lucrative studio (Paramount) movie deals and episodic content (Netflix) license deals around brands such as Transformers and G.I. Joe and My Little Pony.
“This deal diluted Hasbro’s shareholders, added a substantial amount of debt to the balance sheet, complicated the investor narrative and destroyed significant value,” Alta Fox said in a statement.
The investor claims Hasbro’s shares declined 9% the day of the deal announcement and remain dramatically lower than pre-acquisition levels today. At the same time, Alta Fox says Hasbro’s “significant underperformance” over the past five years nonetheless enriched senior executives with around $180 million in compensation.
“Hasbro’s total annual board compensation exceeds that paid to the board of directors of Apple and many other world-class companies of greater scale and with superior results,” read the statement.
In addition to new board members, Alta Fox says Hasbro should spin off its “Wizards of the Coast” (WOTC) game segment (brands include “Magic: The Gathering” and “Dungeons & Dragons”), which the investor claims is a “hidden gem” with a “completely different” growth, margin and valuation profile than the consumer products and entertainment segments.
WOTC upped its revenue 42% in 2021 to nearly $1.29 billion, according to Hasbro. Alta Fox believes the brand could be worth $100 per share when spun off as a standalone publicly traded property. Hasbro shares are currently trading at around $100 per share.
“We 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,” Alta Fox wrote.
Hasbro, in a statement, said it received Alta Fox’s letter and said its board and management team — led by new CEO and former WOTC president Chris Cocks — have held discussions with Alta Fox to better understand its views on the game maker’s strategy.
Hasbro said that while it feels it has a “highly qualified, independent, experienced and engaged board,” it would evaluate the notice of nominations, and the nominees, as it would submissions made by other shareholders.