NEW YORK (TheStreet) - The potential acquisition of Hasbro (HAS) acquiring Dreamworks (DWA) uncovers three key banners in the toy industry and is long-term positive for Hasbro. However, in the meantime, there are some key risks for the stock and volatility worries to keep in mind:
(1) Hasbro, along with Mattel (MAT) , is a cash generation business with a high dividend yield. It is well held by mutual funds seeking cash generation businesses. It's the type of stock you would buy your grandmother. However, an acquisition of DreamWorks (or more risk-loving investments upstream in content) would make it more risk-prone, so we will potentially see an investor base shift (DreamWorks makes Hasbro more hit-driven and more costly biz, and thus could devalue stock from valuation standpoint
(2) Importantly, would Disney (DIS) be upset if this happens? Disney properties account for about 30 percent of annual Hasbro revenues. The Marvel franchise (along with upcoming Lucas and Disney princess) are key to the Hasbro bull story, and any disruption to the relationship with Disney would be extremely disruptive to the stock. In other words, we don't want to mess with Spiderman or the Avengers. Or Luke Skywalker.
(3) There is risk that DreamWorks films and their toy initiatives won't be successful, particularly if they don't achieve box office success, as DreamWorks history has been spotty.
That being said, here are the three long-term dynamics and where Hasbro is moving, which positions the stock favorably