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Fitch places Hasbro on rating watch negative over Entertainment One acquisition

Fitch Ratings on Aug. 23 placed Hasbro Inc.'s ratings on Negative Watch following the U.S. toymaker's plan to acquire Canadian multinational mass media and entertainment company Entertainment One Ltd. for $4.0 billion.

The maker of Play-Doh and Nerf blasters agreed to buy Entertainment One, which owns children's series Peppa Pig, in an all-cash transaction. Hasbro plans to fund the deal with the proceeds of debt financing and approximately $1.0 billion to $1.25 billion in cash from equity financing.

Because it's partly debt-funded, Fitch said the proposed acquisition of Entertainment One would materially increase Hasbro's leverage profile.

If the transaction secures all necessary regulatory and shareholder approvals and proceeds, Fitch said it could downgrade Hasbro's issuer default rating by two to three notches to BBB- or BB+. But even if the deal fails to proceed as planned, Fitch said it could still downgrade the ratings if Hasbro initiates large leveraged share repurchases or acquisitions.

Meanwhile, Fitch said it could raise the ratings if the transaction does not close as contemplated and if Hasbro maintains or grows its market share and maintains positive organic growth.

The rating agency said Hasbro's current BBB+ rating reflects the company's position as one of the largest companies in the approximately $90 billion global toy industry.