An activist investor group is putting pressure on toy company Hasbro Inc (NASDAQ:HAS) to spinoff one of its fastest growing segment. Here are the details of the proposal and how it could be a good idea for the company.
What Happened: Alta Fox Capital is proposing that Hasbro complete a tax-free spinoff of its Wizards of the Coast business.
Alta Fox Capital is a top ten shareholder in Hasbro, owning around 2.5% of the company. Alta founder Connor Haley said his asset management firm typically collaborates with companies to unlock shareholder value, but that was not the case with Hasbro.
Haley launched a letter to shareholders, a website (freethewizards.com) and a 100-slide investor presentation, highlighting the base case for shares of Hasbro to double with the spinoff.
Hasbro has a slow growth toy business that is also complemented by its fast-growing Wizards and digital games segments, which are being buried and not noticed, according to Haley.
“Wizards of the Coast is one of the most impressive business models we’ve ever analyzed,” he said.
Haley points to 71% of Hasbro’s intrinsic value being held by the Wizards unit, which has built-in fan bases spanning decades thanks to the “Magic: The Gathering” and “Dungeons & Dragons” brands.
Wizards of the Coast Growth: Called “Hasbro’s Hidden Gem” by Alta Fox Capital, Wizards of the Coast is a company that should trade with a different multiple than the consumer products and entertainment segments for Hasbro, according to the investor.
Hasbro did not break out revenue for the Wizards of the Coast brand for the past 20 years. In February 2021, the Wizards segment was listed as a separate business segment to highlight the growth.
In fiscal 2021, the Wizards of the Coast segment has year-over-year growth of 42%. Full year revenue was $1.29 billion. EBITDA of the unit was not broken out, but Alta Fox believes Wizards contributed around 50% of the overall EBITDA for Hasbro in fiscal 2021.
Revenue for Wizards of the Coast has grown at a compounded annual growth rate in the double digits for the last ten years.
Hasbro reported that Magic: The Gathering revenue was up for a fourth consecutive year in 2021, marking 12 of the last 13 years that the segment has grown on a year-over-year basis. Dungeons & Dungeons revenue was up for the ninth consecutive year in 2021.
A Magic: The Gathering animated series is expected to release on Netflix Inc (NASDAQ:NFLX) in the second half of 2022. A feature film based on the Dungeons & Dragons franchise is scheduled for a 2023 theatrical release.
These two events could act as catalysts to create brand awareness and cross-promotional activities, setting the Wizards of the Coast segment up for a potential two strong years.
Despite the high growth already realized, Alta Fox believes Wizards can grow even more with several additional steps. The activist investor also sees the key Wizards franchises in the “early innings of digital monetization.”
“As an independent business, we believe WOTC would be worth more than $100 per share today.”
Related Link: Could Hasbro Stock Get A Boost From NFTs, Wizards Of The Coast Growth?
What’s Next: Alta Fox Capital has nominated five independent nominees for the Hasbro Board of Directors, which will be voted on in the spring. Here are details on the nominees:
- Matthew Calkins: founder, CEO Appian Corporation (NASDAQ:APPN), also an author of books about board games.
- Marcelo Fischer: CFO at IDT Corporation (NYSE:IDT)
- Rani Hublou: Principal at Incline Strategies LLC
- Jon Finkel: Managing Partner, co-Chief Investment Officer at Landscape Capital Management LLC, a former professional “Magic: The Gathering” player and considered one of the greatest of all time.
- Carolyn Johnson: former Chief Transformation Officer at American International Group Inc (NYSE:AIG)
Hasbro stock has underperformed the S&P 500 and Alta Fox Capital believes shareholders have missed out on billions of dollars in value along the way.
“We believe Hasbro stock price would be worth over $200 a share.”
The investor presentation from Alta Fox Capital calls for a base case share price target of $201.72 for Hasbro. The bull case calls for Hasbro shares to hit $309.67 if the spinoff happens and all changes are made.
Hasbro has not responded to the activist push. Alta Fox Capital is open to a “productive dialogue with Hasbro’s leadership.”
HAS Price Action: Hasbro shares closed at $97.98 on Friday.
Photo: Courtesy of newsroom.hasbro.com
