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DreamWorks Animation in Merger Talks with Hasbro

Toon studio also is considering selling a stake of AwesomenessTV to Hearst Publishing

DreamWorks Animation Merger Talks with Hasbro

DreamWorks Animation is in talks with Hasbro to merge the toon studio with the toy maker, according to individuals familiar with the discussions, Variety can confirm. In another potential deal, DWA is considering selling a stake of AwesomenessTV to Hearst Publishing for $81.5 million.

The companies were unavailable or declined to comment, with Hasbro saying it has a corporate policy not to comment on rumors or speculation. Deadline first reported the talks.

The discussions — as well as other potential takeovers of DreamWorks from Japan’s SoftBank — in recent months signal that DWA-chief Jeffrey Katzenberg is clearly looking for a partner with whom he can restructure a company that has recently struggled at the box office with a string of misses with “Rise of the Guardians,” “Turbo” and “Mr. Peabody & Sherman.” “How to Train Your Dragon 2” is one of its few hits of late. DWA’s next film is “The Penguins of Madagascar.”

The timing of the merger talks come a decade after DWA became a publicly traded studio, and as Katzenberg has been aggressive in expanding the house that “Shrek” built into other areas — including television, digital, consumer products, live entertainment — so that its bottomline doesn’t have to solely rely on the box office.

Doing that, of course, has made DWA more attractive to investors.

A merger is said to take at least 60 days, with Hasbro being asked to pay $35 a share for DreamWorks. DWA’s stock closed at $22.37 on Wednesday. Hasbro closed at $57.47.

Hasbro is the larger company, with a market cap of $7.1 billion, while DWA is valued at about $1.89 billion.

Katzenberg would become the head of a combined Hasbro-DreamWorks, according to individuals with knowledge of the talks.

Naturally, there is still a lot to work out, as both companies are publicly traded. DWA would also have to likely renegotiate its current contract with 20th Century Fox, which distributes the toon studio’s films. Hasbro has negotiated one-off deals for its own films. Paramount has ‘Transformers” and “G.I. Joe,” while Universal released “Ouija,” and has “Jem and the Holograms” forthcoming. It’s looking for a distribution partner for “My Little Pony,” while Sony has already secured rights to “Candy Land.”

If the two companies can come to terms, it would create the only film studio to own an actual toy production business. Studios typically license their film and TV properties to Hasbro or rival Mattel.

Hasbro currently produces playthings for Disney, Marvel and Lucasfilm’s “Star Wars,” as well as Rovio’s “Angry Birds” franchise.

The toymaker’s own brands include Transformers, G.I. Joe, Candy Land, Monopoly, Risk, Ouija, My Little Pony, Littlest Pet Shop, Care Bears and Magic: The Gathering.

There are obvious reasons Hasbro and DreamWorks would be a good fit.

DreamWorks sees consumer products as a major moneymaker the way Disney has been able to turn licensed merchandise into a massive $40 billion a year business, and through Hasbro, it would be able to turn to the industry’s second-largest toy company.

With DreamWorks, Hasbro would have a production partner as it looks to get more of its own toys onto the big and smallscreens through Hasbro Studios.

In fact, as Variety first reported, Hasbro Studios recently spun off Allspark Pictures as a new banner through which it will take more creative and financial control in how some of its properties are adapted. The first projects through Allspark are “Jem and the Holograms” and a full-length animated “My Little Pony” feature.

Hasbro also owns 40% of Discovery Family, a kids cable channel that was launched as The Hub with Discovery Communications. DreamWorks Animation has a deal to provide 300 hours of family programming to Netflix.Through its various location-based pacts around the world, Hasbro would be able to exploit its properties at theme parks and entertainment centers, especially in China. It currently has rides like one for “Transformers,” at Universal Studios resorts.

As for AwesomenessTV, the online entertainment network that targets teens and tweens would use Hearst’s investment to launch three new channels — one for moms, another for sports, and a third that packages AwesomenessTV content.

AwesomenessTV, which DWA bought in 2013, for $33 million (with an option to pay out another $120 million should the company meet certain metrics), has grown its audience significantly since then. It now has over 100 million subscribers on YouTube, and a billion views a month.

During the summer, it helped DWA launch the family friendly digital channel DreamWorks TV. It recently set up a live action “Richie Rich” TV series on Netflix, and in December, it will debut high-school comedy “Expelled” with Vine star Cameron Dallas in the lead role in theaters, before releasing it on download-to-own services and VOD. Last year, AwesomenessTV’s “Mindless Behavior: All Around the World” concert film about the boy band Mindless Behavior had a limited release in AMC theaters.

DreamWorks would pocket $56.25 million for a 25% stake in AwesomenessTV, with another $25 million going into the online network, according to Deadline.

AwesomenessTV founder Brian Robbins and chief operating officer Brett Bouttier would remain with the company and get five-year extensions to their contracts.