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Hasbro, Inc. |
(Name of Registrant as Specified in Its Charter)
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Alta Fox Opportunities
Fund, LP
Alta Fox SPV 3,
LP
Alta Fox SPV 3.1,
LP
Alta Fox GenPar,
LP
Alta Fox Equity,
LLC
Alta Fox Capital
Management, LLC
Connor Haley
Marcelo Fischer
Rani Hublou
Carolyn Johnson
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Alta Fox Opportunities Fund, LP, together with the other
participants named herein (collectively, “Alta Fox”), has filed a
definitive proxy statement and accompanying GOLD proxy card with
the Securities and Exchange Commission to be used to solicit votes
for the election of its slate of highly-qualified director nominees
at the 2022 annual meeting of shareholders of Hasbro, Inc., a Rhode
Island corporation (the “Company”).
Item 1: On the evening of May 18, 2022, Alta Fox issued the
following press release:
Alta Fox Responds to Hasbro’s Recent Presentation and Reinforces
the Urgent Need for Boardroom Change at the 2022 Annual Meeting
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
DALLAS – May 18, 2022 – 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.
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).
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.
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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.
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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%.
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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” |
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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.
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“Hasbro
acknowledges its recent underperformance, and believes it is
explained by the unfortunate timing of eOne as well as broader
industry headwinds” |
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Hasbro’s underperformance has been more than just “recent.”
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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.
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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.
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“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…” |
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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:
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Hasbro's organic revenue in FY21 was ~12% lower vs FY18.
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Hasbro’s FY21 EBIT margin target was 220 basis points lower vs
FY18.
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Hasbro’s total FY21 free cash flow target was 25% lower vs FY18
despite the additional inorganic contribution from eOne.
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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.
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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
|
2 Alta Fox Presentation Slide 22
"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." |
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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.
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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."
|
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Ironically, Hasbro's "defense" of its strategy further validates
investors’ concerns.
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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.
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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.
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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." |
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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.
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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."
|
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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.
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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” |
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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." |
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Hasbro has failed to grasp that this proxy contest is a
referendum on corporate governance, capital allocation, and
ultimately alignment with minority shareholders.
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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.
Contacts
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
Item 2: Also on the evening of May 18, 2022, Alta Fox uploaded the
following materials to www.strengthenhasbro.com:

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