Early Thursday, The Wall Street Journal reported that private-equity firm Providence Equity Partners has been in talks with Hasbro (HAS) about taking the toy company private. However, the Journal warned that "people familiar with the matter cautioned that the discussions, which had advanced over several weeks, could have come to a temporary halt given the uncertainty in the markets."
In a statement issued today, Hasbro said that it is not having any discussions regarding the sale of the company. Hasbro confirmed that it had been approached by a private equity firm regarding a transaction, and said that its board of directors determined that there was no interest in pursuing such a transaction.
But if Hasbro were up for it, it's worth considering just how much Providence Equity would be willing to pay for the maker of Mr. Potato Head and G.I. Joe. Hasbro has a market cap of $5.98 billion and its stock is fully priced at $41.12, near its 52-week high. The market has not caught onto a possible deal based on the company's stock price in the last several days. The buyout offer would almost certainly have to be for $8 billion to get any real interest from the board and investors.
Hasbro has $1.3 billion in cash, according to its 10-Q, and $1.4 billion in long-term debt, so its debt obligations will not be an issue. Earnings for the toy maker have improved, but they may not be enough to support an $8 billion price. Revenue in the first quarter was $673 million. Net earnings were $58 million. But there is some evidence that the economy is slowing, so that net income may be a near-term high watermark.
Private equity firms, which hold about $500 billion in assets right now, may have a hole burning in their pockets, but at $8 billion, a company with an annualized net income of under $200 million is a stretch.
What's your investing game plan?View Course »