DreamWorks and Hasbro Would've Been a Sweet Pair

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Buyout rumors come and go, but there was one potential pairing that made too much sense to let go of. Shares of DreamWorks Animation (DWA) soared 17 percent a couple of weeks ago after Hollywood insider Deadline.com reported that Hasbro (HAS) was in talks to acquire the animation studio. The New York Times' DealBook also had sources telling it that the deal was legit.

The chatter didn't get much of a chance to simmer. Negotiations reportedly broke off during that very weekend, and shares of DreamWorks plunged 14 percent the next trading day.

Hasbro shareholders got a break. Its stock had taken a 7 percent hit during the same week that DreamWorks had seen its shares fly high on the chatter. Wall Street either felt that Hasbro would be overpaying for the animation studios or felt that it wasn't a good match. The stock made back most of that dip after sources told reporters that the deal was dead.

It Would Have Made Dollars and Sense

The very notion of Hasbro buying DreamWorks Animation probably seemed absurd at first. Why would a toy giant ringing up more than $4 billion a year -- rivaling Lego and behind only global leader Mattel (MAT) -- want to get into the hit-or-miss movie business? Well, Hasbro's own actions in recent years point to a company that's growing fond of the silver screen.

It has helped turn a few of its toy franchises into popular film properties. Transformers has cranked out four full-length feature films since 2007, averaging nearly $330 million apiece in domestic ticket sales. The fourth installment this summer was the least financially successful, but it still raked in more than $245 million at the box office.

G.I. Joe is another Hasbro line that has received the celluloid treatment. Those two movies haven't been at the same blockbuster level as "Transformers," but the 2009 and 2013 releases did manage to break into the respectable nine figures.

Even Hasbro toy lines that don't organically lend themselves to compelling stories have found big studios willing to take chances. Battleship and more recently Ouija weren't multiplex darlings, but they didn't exactly bomb, either.

In short, Hasbro knows that toys can make compelling movie franchises -- and vice versa. Sales of G.I. Joe and Transformers playthings have spiked around the time of movie releases. Locking up DreamWorks Animation would have given Hasbro new characters to inspire the next generation of toys. It also would have provided access to the second most successful computer animation studio if Hasbro wanted to take more control in getting its toys into theatrical features.

Shrek the Halls

DreamWorks Animation knows that every release can't be "Shrek" or "Madagascar." It's had a few duds lately, including last year's "Turbo" and "Rise of the Guardians" the year before that. However, this is also a studio that knows how to milk a franchise when it's successful. Despite all of the magic at Disney (DIS) and its Pixar subsidiary, the highest-grossing computer-animated film of all time in this country remain's 2004's "Shrek 2" from DreamWorks.

This doesn't mean that a marriage between Hasbro and DreamWorks would have been perfect. Hasbro has a lucrative licensing deal with Disney covering everything from "Frozen" to "Star Wars." If Hasbro were to become a more direct competitor to Disney, it wouldn't be a surprise if the family entertainment giant chose to rely on rival toy manufacturers in the future. Could Disney have gotten to Hasbro's ear during the weekend when the negotiations fell apart? However, if Hasbro would have been able to weave its way through its existing licensing partnerships and still walk away with DreamWorks, it would have been a more dynamic company with greater upside the next time that the studio produced a hit.

There was no storybook ending to this proposed pairing, but it would have been a good match for both companies.

Motley Fool contributor Rick Munarriz owns shares of Walt Disney. The Motley Fool recommends DreamWorks Animation, Hasbro, Mattel, and Walt Disney. The Motley Fool owns shares of Hasbro and Walt Disney. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.
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