DreamWorks talks set the scene for more toy stories

 

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The Independent Online

It looks like the little boy fishing on the moon might have a new owner and, perhaps to the horror of parents all over the globe, it could mean a My Little Pony movie.

Hasbro, the US toy maker behind My Little Pony and Transformers, is reported to be in “advanced talks” to buy DreamWorks Animation.

The news comes just over a month after reported talks between DreamWorks Animation and the Japanese telecoms group Softbank seemed to have fizzled out.

Hasbro and DreamWorks Animation have declined to confirm or deny the reports, although both stocks reacted strongly in afternoon US trading yesterday, with DreamWorks Animation climbing 16 per cent to about $26 and Hasbro down nearly 5 per cent.

At $30 per share – the minimum its founder, Jeffrey Katzenberg, will accept, according to reports – DreamWorks Animation would be valued at about $2.4bn (£1.5bn), not including debt. That may seem like a somewhat paltry price tag, but the company produces relatively few pictures by Hollywood standards, and most also come with massive marketing budgets.

 

Founded in 1994 by Mr Katzenberg and fellow Hollywood heavyweights Steven Spielberg and David Geffen, DreamWorks sought to revolutionise the mix of live action and animation in movies through the use of computer generated imagery.

Mr Geffen is no longer associated with DreamWorks Animation. Mr Katzenberg, a former head of Disney, remains the chief executive and largest shareholder.

The original DreamWorks is now privately held. It spun off the animation arm in 2004 and now concentrates on live action movies, many of which, such as Lincoln and War Horse, have been critical successes but not blockbusters at the box office.

Until recently, DreamWorks Animation continued to churn out the hits, including the Shrek series, Kung Fu Panda and How to Train Your Dragon. Over the last two years, however, it has failed to keep the success stories coming, and the company has reported net losses in two out of the last three quarters.

With its film production unit failing to deliver historical returns,  it has expanded into television production and other consumer products. As a result, operating expenditure has been higher than anticipated. The broker Goldman Sachs reiterated its “sell” advice on 30 October, with a price target of just $16. The stock has been trending lower for most of the last 12 months despite a bullish American equity market.

However, combining with Hasbro could give the company a new lease of life. The two worked together on the original 2005 production of the Transformers movie. and Hasbro could be a much better fit than Softbank.

These movies are not just about getting people into theatres, they are about long-term toy tie-ins. DreamWorks Animation gives Hasbro much more depth to their film-making potential, while Hasbro would give DreamWorks marketing, manufacturing and toy sector expertise.

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