DHX Media Ltd. (DHXM - Get Report) , the company that owns the rights to the Peanuts franchise as well as Teletubbies and Strawberry Shortcake, among others, has hit the block as the company looks to capitalize on the growing demand for licensed content.
DHX Media announced Monday, Oct. 2, that it had appointed a special committee to explore strategic alternatives, which could include a sale of the company and its assets.
DHX Media did not name a banker to oversee the review though it said its special committee would be made up of independent board members Donald Wright, Elizabeth Beale and Geoffrey Machum. Wright, who is chairing the committee, said the company likely would choose an investment bank to advise on the review within the next week.
The decision to explore options comes after DHX saw almost 30% of its share value evaporate over the past month and just three months after the company completed the acquisition of the rights to the Peanuts franchise (Charlie Brown, Snoopy and the whole gang) from Iconix Brand Group Inc. (ICON - Get Report) . The $345 million cash deal also included the Strawberry Shortcake brand.
DHX Media tapped Deutsche Bank Securities Inc. as its financial adviser on the Iconix the deal. A Bryan Cave LLP team led by David Andersen provided legal advice to DHX.
"While the potential acquisition of the company has been a part of our positive thesis since initiating coverage in March, we believed this might happen as a function of license demand strength and not during a period of short-term weakness," B. Riley & Co. LLC analyst Eric Wold said in a note Tuesday.
DHX owns the Inspector Gadget, Teletubbies, Caillou and Yo Gabba Gabba franchises, licensing the brands out to content creators, but it also creates its own programming both for television and the internet through its various subsidiaries. DHX is also the owner of the Degrassi television franchise.
Wold suggested the company could look to sell its television segment, DHX Television, which owns stations including Family Channel, Family CHRGD, Family Jr. and Telemagino, or negotiate a partnership around WildBrain, its online content production business.
As far as valuation, Wold put an C$8.50 price target on DHX's Toronto-listed shares, which trade under the symbol DHX.A. That price would value the company at about C$861 million ($689 million) based on the 101.4 million shares trading in Canada.
The stock was down about 5.6% to C$5.24 per share on Tuesday afternoon. Shares hit a high of C$5.59 on Monday following the announcement of the review.
They had plunged 16.4% on Thursday after DHX announced the results of fiscal 2017, ended June 30.
"Management was disappointed with the results for Q4 and fiscal 2017 overall," CEO Dana Landry said in a statement Wednesday. "Teletubbies in the U.S. market has underperformed, and execution on the content side of the business did not match the tremendous opportunity in the kids' and family content market."
Wold's valuation reflects a multiple of 13.5 times the C$143.1 million in projected 2018 Ebitda B. Riley models. As of June 30 the company has cash and cash equivalents of C$62.5 million and about C$748 million in debt, according to filings. DHX reported C$87.3 million in adjusted Ebitda for fiscal 2017 and C$103.7 million for 2016.
"We believe the current modeled projections may not reflect that value that can be created under a strategic review," Wold wrote.
DHX Media was founded in 2004 and has built up its portfolio of brands and content mainly through acquisition.
In April 2014 DHX acquired Epitome, the produce of Degrassi for $33 million plus stock adding to its portfolio that already included Yo, Gabba Gabba!, Caillou and Teletubbies. In December 2014 the company added popular children's comedy adventure series Slugterra, with the acquisition of Nerd Corps Entertainment Inc. for up to C$57 million.
On March 3, the company acquired 80% of Whizzsis Ltd., which owns and produces proprietary kids and family content and operates a kids- and family-focused YouTube channel, for £1.29 million ($1.72 million) upfront plus certain milestones.
Content creation and brand licensing has been a major feature of media dealmaking over the past few years. On the large-cap side, Netflix Inc. (NFLX - Get Report) recently acquired Millarworld Ltd., a producer of graphic novels and comics featuring characters such as the Kingsman, Old Man Logan and Kick-Ass. Terms of the deal, Netflix's first ever, weren't disclosed.
In April 2016, Verizon Communications Inc. (VZ - Get Report) paid about $159 million to acquire a 24.5% stake in AwesomenessTV Inc., a youth-focused digital media company owned by DreamWorks Animation SKG Inc. and Hearst Corp.