Canada’s DHX Media has inked a deal to sell 49% of its 80% interest in the Peanuts brand to Sony Music Entertainment Japan (SMEJ) for US$185.7 million.
Following completion of the transaction, DHX will own 41% of the brand, while SMEJ will hold 39% and family members of the late Charles M. Schulz will continue to own 20%. The deal is expected to close on June 30, pending regulatory approvals, applicable third-party consents and the execution of certain ancillary agreements.
On an investor call on Monday, DHX executive chair and CEO Michael Donovan said the deal will see the media company retain control of the brand’s direction through its majority stake, with net proceeds from the transaction going toward DHX’s debt reduction. Donovan told investors that the deal is advantageous to DHX, allowing the company to grow the brand internationally and de-lever its balance sheet.
As part of the deal, DHX also extended the length of its current licensing and syndication agency agreement in Japan with SMEJ’s consumer products division, Sony Creative Products. Donovan said that Japan represents an area of significant opportunity for the Peanuts brand, with SMEJ having grown the Peanuts business by more than 200% since it became the brand’s agent in 2010. Currently, 40% of Peanuts’ total business is in Japan, according to Donovan, adding that the brand’s rollout in Japan can act as a template for other territories, including China, which he identified as a significant area of focus.
The announcement of DHX’s deal to sell almost half of its interest in the Peanuts brand comes one year after the Halifax-headquartered company originally announced its plans to acquire the property from New York’s Iconix Brand Group. At the time, DHX took an 80% controlling interest in Peanuts and 100% of Strawberry Shortcake for US$345 million.
Roughly five months later, following what it called “disappointing” financial results for fiscal 2017, DHX announced a strategic review of its operations. The review, which is expected to conclude by the end of the month, has already yielded significant changes. Among them was the departure of former CEO Dana Landry, who left the company in February. Then, last month, DHX revealed that president and COO Steven DeNure was to leave the company, with Josh Scherba being promoted to president and Aaron Ames named COO.
DHX on Monday provided an update on the review, revealing that the special committee established to undertake the process is also assessing a number of other moves, including “suspension of the dividend and potentially de-listing from the NASDAQ to realize cost savings.” DHX began trading on the NASDAQ Global Select Market in June 2015.
The company added that it is in advanced discussions on material licensing opportunities that it believes will be able to further reduce its debt.
In addition, the company has released its financial results for Q3 2018. Revenue for the period grew by 49% to US$91.2 million, compared with US$61.3 million a year ago. Of that revenue increase, 46% was acquisitive growth from the Peanuts and Strawberry Shortcake brands, and the remaining 3% was organic growth. Meanwhile, adjusted EBITDA was US$20.9 million for the quarter, with a net loss of US$6.3 million, compared with adjusted EBITDA of US$19.5 million and net income of US$5.9 million in Q3 2017.
In addition, the company announced its intention to cut back on the number of projects going forward. Whereas in the past DHX may have produced between 12 and 14 series per year, Donovan said the strategic review has made it clear that DHX must prioritize its most recognizable brands, including Peanuts, Strawberry Shortcake, Mega Man, Polly Pocket and Fireman Sam.
Scherba added that while DHX will begin focusing a greater degree of its spending on its high-end, tentpole series, the company will also continue building brands with lower-cost content through its Wildbrain multiplatform network.