Shares of DreamWorks Animation surged in pre-market trading Thursday after news broke that the film studio and Hasbro are in talks to merge.

DreamWorks Animation shares soared more than 20% to over $27. The company had closed trading Wednesday at $22.37. Hasbro’s stock took a hit, however, dropping 2.12% to $56.24 before markets opened.

Under the proposed deal, Hasbro would pay roughly $35 a share for DreamWorks Animation and CEO Jeffrey Katzenberg would become chairman of the combined company, sources tell Variety.

That’s not the only deal in the works. DreamWorks Animation may also sell a stake in AwesomenessTV to Hearst Publishing for $81.5 million. It bought the YouTube and television company for $33 million in 2013.

Katzenberg has been entertaining offers for the struggling studio, and has previously discussed a possible deal with 21st Century Fox. DreamWorks Animation was in talks with Japanese telecommunications and Internet giant Softbank before the deal fell apart last September. News of a possible Softbank purchase goosed DreamWorks Animation’s stock at the time.

The studio’s share price has suffered from a series of film misses such as “Turbo,” “Mr. Peabody and Sherman” and “Rise of the Guardians,” all of which resulted in write-offs. It also dipped when “How to Train Your Dragon 2” missed box office projections with its domestic launch. The company has tried to diversify beyond film into consumer products, television and other areas, but it is still overly dependent on the two or three films it releases annually.

Analysts said a deal with Hasbro could help DreamWorks Animation forge new revenue streams, particularly given the company’s library of film and television characters such as Casper, Kung Fu Panda and Shrek.

“Although a potential tie-up between a toy manufacturer and a movie studio may not be the most oft-considered scenario, we do see some opportunities for two to effectively work together through both consumer product line development and the use of some of Hasbro’s brands/franchises in future movies (those that have not already been licensed by other studios),” wrote B. Riley analyst Eric Wold in a note.

Some cautioned that Hasbro would be paying a premium for a company with significant business challenges.

“We don’t see a plausible argument for why [Hasbro] would pay 41% of its current market capitalization for a company which, according to its CEO is facing serious challenges,” Sterne Agee analyst Vasily Karasyov wrote in a note. “Films profitability continues to decline and the ramp in consumer product revenue the bulls hoped for isn’t coming.”

Deadline first reported that Hasbro and DreamWorks Animation were in merger talks.