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Hasbro (HAS) in Talks to Acquire DreamWorks Animation

Reportedly, toymaker Hasbro Inc. (HAS) is in talks to buy California-based DreamWorks Animation SKG Inc. (DWA), the studio that produced blockbuster films like Shrek and Kung Fu Panda. Per media reports, Hasbro will pay around $30 a share – a premium of 35% to DreamWorks Animation’s closing price on Wednesday. An official announcement regarding the deal is likely to come in the next two to four weeks.

Hasbro emerged as a buyer after DreamWorks Animation’s talks with SoftBank Corp. — a Japanese telecommunications and Internet corporation — fell through. The deal, if completed, will merge DreamWorks Animation’s Hollywood production assets and movie library with one of the largest toymakers, boasting a huge product line-up.

Further, the combination of these two companies could help both to diversify beyond their core businesses. DreamWorks Animation has recently expanded into consumer products including expansions in online video, publishing and television. However, it still fails to match the popularity of The Walt Disney Company (DIS).

We believe the deal with Hasbro could reduce DreamWorks Animation’s reliance on its animated movies by expanding its television and consumer products businesses. Joining Hasbro also would significantly expand DreamWorks Animation’s toy merchandise.

Hasbro, on the other hand, is constantly looking to diversify its business. In 2010, the company inked a joint venture with Discovery Communications, Inc. (DISCA) to create a cable channel – The Hub Network – targeting the children’s TV market. The channel was recently repositioned as the Discovery Family Channel and will continue to prominently feature Hasbro Studios’ children’s content during daytime.

Hasbro has also recently launched its film label, Allspark Pictures, with movies based on its toy brands like My Little Pony, Jem and the Holograms on the cards. The acquisition would allow Hasbro to foray into the animation industry by giving it access to DreamWorks Animations' large library of characters.

Hasbro currently carries a Zacks Rank #3 (Hold).

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