Wizards of the Coast Split from Hasbro Unlikely, Says Analyst

A proposed plan to break off Wizards of the Coast from Hasbro is unlikely to go forward, says one longtime analyst of the company. Last week, activist investor Alta Fox Capital Management announced plans to propose five new board members to Hasbro with the intent to radically overhaul the company. A central part of the investor’s plan is to spin off Wizards of the Coast into its own company, as the gaming division behind Dungeons & Dragons and Magic: The Gathering has a different earnings and profit profile than the rest of Hasbro. By splitting off Wizards into a separate company with separate stock, the activist proposed that Hasbro’s stock would double in value to nearly $200 a share. 

While Alta Fox laid out their case to the public with their own website and an appeal to disgruntled Magic: The Gathering fans, a longtime Keybanc analyst believes the split is unlikely to happen. According to analyst Brett Andress, the split only has a 30% chance of actually occurring. “We think the current market environment (i.e., pandemic beneficiary multiples, SPAC-fatigue, etc.) does not exactly lend itself to the business’s NT setup and selling of the WOTC “story”, as the business likely digests outsized FY20/ FY21 growth in the years ahead (a dynamic reflected in the FY22 WOTC guide),” Andress said. Basically, Wizards of the Coast’s current high profit levels aren’t necessarily sustainable as they were partially caused by a confluence of factors related to the pandemic market.

Although the analyst doesn’t believe that the Wizards of the Coast split will happen, this week’s news could have some longterm effects. Andress speculates that more analysts may take notice of the role that Wizards has within Hasbro (one of Alta Fox’s complaints is that the market treat Hasbro as a slow-growth toy company, while Wizards has a different model) and that could lead to an adjustment in how analysts value the company. 

While Hasbro’s stock price briefly shot up from $97/share to $104/share as news broke of the proposed spin out, the price has since leveled out to near its original stock price.