Urges Shareholders to Vote on the
GOLD Proxy Card to Elect Alta Fox’s
Three Highly Qualified and Independent Nominees, Who Collectively
Possess Expertise in Corporate Governance, Capital Allocation and
Strategic Planning
Alta Fox Capital Management, LLC (together with its affiliates,
“Alta Fox” or “we”), the beneficial owner of approximately 2.6% of
the outstanding shares of Hasbro, Inc. (NASDAQ: HAS) (“Hasbro” or
the “Company”), today issued the below statement in connection with
its nomination of three highly qualified and independent candidates
– Marcelo Fischer, Rani Hublou and Carolyn Johnson – for election
to the Company’s Board of Directors (the “Board”) at the 2022
Annual Meeting of Shareholders (the “Annual Meeting”). As a
reminder, Alta Fox is seeking to replace the following long-tenured
members of Hasbro’s 13-member Board: Lisa Gersh, Edward M. Philip
and Richard S. Stoddart. Visit www.StrengthenHasbro.com for more
information about Alta Fox’s campaign for change.
Connor Haley, Managing Partner of Alta Fox, commented:
"This election contest now comes down to one question: should
three long-tenured and underperforming members of Hasbro’s
13-member Board be given a pass at this critical inflection point
simply because the Company has a new Chief Executive Officer?
The reality is the three incumbents we are targeting have presided
over chronic share price underperformance, sustained market share
losses and a perpetual trading price discount relative to intrinsic
value, all while authorizing top tier compensation for bottom tier
performance compared to similarly sized publicly traded consumer
companies. The recent appointment of Chris Cocks does not conceal
this long-term erosion that threatens Hasbro’s viability as a
business. Indeed, even the Company’s own proxy fight presentation
acknowledges ‘its underperformance over the traditional 1, 3 and
5-Year Periods’ and that ‘the company’s recent returns are behind
benchmarks.’ Although we are unequivocally supportive of Mr. Cocks
and want him to succeed, we believe the best way to halt this
decline of the business and ensure better corporate decision-making
is to facilitate a credible refresh of the Board at the June 8th
Annual Meeting. We urge all of our fellow shareholders to send a
long overdue message to the Board that it is in fact accountable
for long-term lapses in capital allocation, corporate governance
and compensation, and strategic planning.
As an investor that intends to hold the
Company’s shares for the long term, we know future growth and value
creation will begin in the boardroom. Public reports
indicate that a growing number of other Hasbro shareholders,
including long-term institutional investors, support our push for
boardroom change at this year’s Annual Meeting.1 We are inspired by
our fellow shareholders’ acknowledgements that Marcelo Fischer,
Rani Hublou and Carolyn Johnson are the right change agents at the
right time for Hasbro’s Board. Mr. Fischer is an expert in capital
allocation and transactions, Ms. Hublou has exceptional growth
strategy experience and corporate governance acumen, and Ms.
Johnson is a proven expert in organizational transformations.
Looking ahead, we hope shareholders
make voting decisions based on the facts rather than the Board’s
contradictory and reactionary responses to our campaign for
incremental change. We find it telling that the current
Board’s most recent response did not address many of the
substantive issues that we and our fellow shareholders have raised
to date. Our campaign has put a spotlight on the current Board’s
undisciplined capital allocation during the ‘Brand Blueprint’ era
and the impact this failure has had on long-term shareholder
returns. Tellingly, rather than contextualize past decisions or lay
out a transparent capital allocation framework for the future, the
Company is now suggesting that its strategy will be reviewed by the
incumbent Board and long-serving executives. In an apparent
about-face, the Company is telling shareholders it will ‘rethink
how Hasbro operates as a company to drive shareholder value’ and
that it is working ‘to execute a comprehensive strategic plan
review to set Hasbro’s future course and drive profitable growth.’
This last-minute pivot designed to win support only validates our
view – and those of other shareholders – that now is the perfect
time to introduce truly independent and fresh perspectives into the
boardroom through the election of our three nominees.
It is especially critical for
shareholders to recognize that the current Board continues to
assume no real accountability for capital allocation, which is the
key lever to profitable long-term growth. The Company’s
recent presentation notes that ‘Chris will apply the growth
orientation and capital discipline that he successfully
demonstrated during his time at Wizards to the entire Hasbro
business.’ This is a startling statement given that a high
functioning board of directors should be actively involved in major
capital deployment initiatives and, as shareholders know, Mr.
Cocks, a first-time CEO, does not yet have experience overseeing
capital allocation decisions at a public entity of Hasbro’s size
and scope. It is equally startling to review slide 14 of the
Company’s recent presentation, which notes ‘Hasbro’s Management
Looks to the Board on a Number of Key Topics.’ The term capital
allocation is not mentioned – not once.
It is a flashing red light from a governance perspective that
the current Board wants no real ownership of capital allocation,
and it is so resistant to shareholders’ desire for a credible
director refresh that it is now spending more than $12 million on
two law firms, two investment banks, two proxy solicitors and an
army of public relations professionals to fight incremental change.
Conversely, Alta Fox is investing its own resources and time to try
to improve Hasbro's governance by adding highly qualified and
independent experts to a 13-member Board. Shareholders should not forget that this is a contest
that could have been averted if the current Board was willing to
settle for one investor-designated independent director and the
formation of a committee to review capital allocation strategy and
provide related support to management. In our view, the
fact that this type of reasonable framework was dismissed ahead of
a defensive expansion of the Board to an excessive 13 members is
all the justification shareholders should need to vote for our
slate at the Annual Meeting.”
Hasbro’s Board requires substantial improvements in corporate
governance, capital allocation, compensation practices and
financial disclosures. The Company’s own communications make it
clear that these skills are not present in the backgrounds of the
three long-tenured incumbent directors we are seeking to remove.
Their bios completely fail to include any mention of capital
allocation expertise, and notably absent is any evidence of TSR
performance they have achieved at their outside public companies.
Furthermore, we find it curious that the company continues to try
to re-direct investors’ focus to industry experience, while not one
of these three incumbent directors has any digital gaming/digital
products expertise as disclosed in the Company’s own, replete
skillset matrix. We believe our three nominees have the backgrounds
and skilled perspectives to strengthen the Board’s composition in
these key areas.
- Marcelo Fischer’s perspective as a capital allocation expert
with a proven track record of value creation would be invaluable to
the Board’s assessment of capital deployment initiatives. Under Mr.
Fischer’s leadership and inclusive of all spin-offs, IDT (NYSE:
IDT) has compounded shareholder value at 25% a year compared to the
S&P 500 at less than 10% a year.
- Carolyn Johnson brings extensive experience in business
transformation, corporate governance and strategic planning that
will be necessary for improving disclosures and enhancing Board and
management accountability. Under Ms. Johnson’s guidance on the
Board, Majesco (formerly NASDAQ: MJCO) achieved an annualized total
shareholder return of 84% compared to the S&P 500’s annualized
return of 12%.
- Rani Hublou possesses the strategic planning expertise and
supply chain knowledge necessary to help Hasbro regain market share
and improve its growth strategy.
In its most recent presentation, Hasbro’s army of advisors have
attempted to justify the Board’s underperformance and absolve it of
accountability. Below, Alta Fox seeks to address disingenuous
claims with facts and realities:
Hasbro’s Disingenuous
Claims
The Facts
“Hasbro Has Actively Refreshed the
Board”
- We believe Hasbro’s most recent Board appointments cannot be
considered a “refresh,” but rather a reactionary expansion of an
11-member Board to an outsized 13-member Board to prevent
shareholder voices from reaching the boardroom.
“Hasbro acknowledges its recent
underperformance, and believes it is explained by the unfortunate
timing of eOne as well as broader industry headwinds”
- Hasbro’s underperformance has been more than just
“recent.”
- The Consumer business declined 1% from FY19-FY21 including eOne
synergies while US-Toy industry sales at retail grew 32%
over that same time period according to market research group NPD,
Inc.
- Hasbro lost important consumer contracts to Mattel in the last
3 months under the leadership of an unqualified interim CEO and
current Chairman, Rich Stoddart.
“Hasbro’s executive compensation program
is appropriate and aligns company performance with
the interests of our shareholders…Hasbro's
last three completed long-term incentive performance cycles
realized values substantially below the targeted grant value, with
our former CEO realizing a total of 47% of such targeted grant
value…”
- Hasbro’s deceptive analysis fails to mention the extremely
material cash payouts earned by
management for hitting meaningfully lowered annual targets year
after year. As a reminder:
- Hasbro's organic revenue in FY21 was ~12% lower vs FY18.
- Hasbro’s FY21 EBIT margin target was 220 basis points lower vs
FY18.
- Hasbro’s total FY21 free cash flow target was 25% lower vs FY18
despite the additional inorganic contribution from eOne.
- Hasbro’s deceptive analysis also fails to mention that the only
reason management earned a substantial performance equity payout in
FY21 was because of drastic cuts to cumulative performance targets
taken in FY21. Specifically, in FY21 Hasbro’s Board lowered
management’s 3-year revenue target by 8%, cumulative EPS target by
18%, and ROIC margin by 80 basis points from the prior year.
- Our analysis of similarly sized consumer companies in the
United States indicated that Hasbro has been among the most
generous in terms of compensation despite being among the worst
stock performers.2
"Hasbro's Board is committed to strict
financial discipline…Divested non-core eOne music business with
proceeds used for business reinvestment and debt pay down…D&D
Beyond acquisition is a recent example of both the Board's and
Chris' disciplined approach."
- In the context of the $4.6B acquisition of eOne for >20x
EV/EBIT, divesting a small component for $385M at our estimate of
10-13x EBIT, a ~50% discount to the purchase price, is hardly proof
of capital discipline. Hasbro's belief that this exemplifies
financial discipline is further indication of an urgent need for
fresh perspectives in the boardroom.
- We question how the Board can possibly claim victory on the
D&D Beyond acquisition and tout that it represents an example
of strict financial discipline when the acquisition has yet to
close and the company refuses to disclose D&D Beyond's Revenue
and EBIT on a pre or post-acquisition basis.
"Hasbro is the Model for Success in Play
& Entertainment. Hasbro has a first-mover advantage and other
IP owners [Mattel, Spin Master, Electronic Arts] are now emulating
its multimedia strategy."
- Ironically, Hasbro's "defense" of its strategy further
validates investors’ concerns.
- Each of the businesses Hasbro references as validation for its
"Brand Blueprint" strategy is pursuing an asset-light
approach to multimedia development, while Hasbro is pursuing an
underperforming asset-heavy strategy across both
Entertainment and video games.
- To put a finer point on the matter, none of these businesses
have ever paid nearly one third of their enterprise value to assume
balance sheet risk in non-core competencies. For example, we
believe investors would rightfully question if EA bought a toy
business or entertainment studio for one-third of its enterprise
value and a massive premium to its own trading multiple.
- It is concerning the Board approved this characterization in
its own investor presentation, as it indicates the directors are
either not aware of the differentiated (asset-light) approach other
businesses are taking to multimedia investments, or they are
deceptively trying to mischaracterize their own strategy.
"Accepting Mattel's $24 All-Stock Offer in
1996 Would Have Destroyed Significant Value for Shareholders. Sale
to Providence Equity for a Slight Premium Would Have Deprived
Shareholders of Meaningful Upside."
- Hasbro irrationally assumes all investors would earn the
annualized market return of Mattel from acquisition to present and
not the S&P 500, an objective and fair proxy for market returns
following an acquisition. Using objective market returns post
offer, Hasbro’s shareholders underperformed the S&P 500 by
>500% since refusing to be acquired by Mattel in 1996.
- In its analysis of Hasbro’s TSR following Providence Equity
Partners’ cash offer to buy the business, the Board wildly compares
the return of Hasbro to the return of Mattel. Not only does this
not make any sense – this is clearly intentional deception from the
Board. Using objective market returns post offer, Hasbro’s
shareholders underperformed the S&P 500 by nearly 300%
following Hasbro’s refusal of Provide Equity Partners.
"Alta Fox does not understand how
successful Wizards has been because Wizards has been part of
Hasbro… 150% growth in high margin: MAGIC: THE GATHERING revenue
driven by Hasbro's >$1 billion investment in Wizards over the
past 5 years."
- Hasbro touts with pride its >$1B invested in WOTC over the
last five years. Not only do investors have no way of validating
this claim or have any visibility into how the capital was
allocated due to exceptionally poor disclosure, but it
completely ignores that Hasbro invested well over $5B into its
Consumer business since 2018 with nothing to show for it except
declining Consumer revenues.
- Moreover, Alta Fox and our nominees believe that investing only
$1B into WOTC over the last five years is not nearly enough as WOTC
has incredible reinvestment opportunities into its core franchises
of MTG and D&D. Our nominees are excited and motivated to
analyze these reinvestments with relentless focus and discipline
while ensuring that non-core investments (such as a speculative AAA
G.I. Joe Video Game), are properly scrutinized.
Alta Fox lacks conviction in its thesis by
“waffling” on a spin-off of WOTC which “assumed a significant
multiple expansion through reference to fundamentally flawed and
inappropriate benchmarks.” Moreover, the analysis “fails to account
for significant, quantifiable dis-synergies that would result from
a separation … [and] the impact of non-quantifiable
dis-synergies”
- Alta Fox's nominees are not wedded to one single strategy
and employ a disciplined capital allocation approach that is, by
definition, price dependent. Their focus is on maximizing long-term
shareholder value.
- In contrast to our nominees, the Board has repeatedly
demonstrated that it is stubbornly committed to empire-building
through disastrous M&A despite the growing evidence that this
strategy is eroding Hasbro’s market share and relevance in the toy
industry.
"Alta Fox's slate of nominees does not
possess relevant industry expertise for Hasbro's Board… Alta Fox's
nominees would only serve to disrupt and distract the company from
executing its strategic plans for the future of Hasbro. None of
Alta Fox's nominees brings relevant industry expertise to support
Chris Cocks in his new position as CEO, and their nominations show
that Alta Fox's interests are not aligned with Chris' vision for
the company."
- Hasbro has failed to grasp that this proxy contest is a
referendum on corporate governance, capital allocation, and
ultimately alignment with minority shareholders.
- Hasbro's arrogant swift dismissal of Alta Fox's nominees and
criticisms further indicates a desperate need for fresh, objective
perspectives on the Board that will address the deep corporate
governance issues that Alta Fox has highlighted.
- Alta Fox's nominees are experts in ensuring alignment with
shareholders, instituting disciplined capital allocation, and
driving value in public markets - exactly what Hasbro's Board
needs.
Learn more about the Alta Fox slate and how to vote for
boardroom change on the GOLD proxy
card by visiting www.StrengthenHasbro.com.
***
About Alta Fox
Founded in 2018 by Connor Haley, Alta Fox is a Texas-based
alternative asset management firm that employs a long-term focused
investment strategy to pursue exceptional risk-adjusted returns for
a diverse group of institutions and qualified individual clients.
Alta Fox focuses on identifying often overlooked and
under-the-radar opportunities across asset classes, market
capitalization ranges and sectors. Learn more by visiting
www.AltaFoxCapital.com.
1 Reuters, “Hasbro shareholders push toymaker to settle with
Alta Fox, refresh board,” May 10, 2022 (link) and The Wall Street
Journal, “Activist Investor Ancora Has 1% Hasbro Stake,” May 2,
2022 (link). 2 Alta Fox Presentation Slide 22
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220518006146/en/
For Investors: Okapi Partners Mark Harnett, 646-556-9350
mharnett@okapipartners.com
For Media: Longacre Square Partners Greg Marose / Bela
Kirpalani, 646-386-0091 gmarose@longacresquare.com /
bkirpalani@longacresquare.com
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