Shares of Canadian media company DHX Medial Ltd. (TSX:DHX)(NYSE:DHX) have continued to decline of late, due to a number of moves investors have viewed as very negative catalysts for the company’s long-term growth potential.
In May, the company announced it had entered into an agreement with Sony Music Entertainment Japan to sell a 39% stake in iconic animated comic/cartoon empire Peanuts Holdings Inc. for $237 million U.S. The company noted this sale was due in part to the firm’s over-leveraged balance sheet, and was made in part to create a strategic partnership with Sony for the long-term growth of this business.
DHX has retained a 41% stake in Peanuts, maintaining its position as the company’s largest shareholder, but giving up majority control of the company it had recently acquired a majority stake of 80% in for $345 million U.S. last June.
While I believe DHX may still be a takeover target for firms looking for specific niche content acquisitions in Canada, this sale certainly dampens the long term outlook for such a deal taking place, as an acquirer would likely view the former majority stake in Peanuts as a very significant asset.
Additionally, the company has warned that it may suspend its dividend distribution, another key reason for holding shares of DHX, making this company unattractive to both acquirers and investors in the near to medium term.
At this point in time, DHX appears to be too toxic to touch – I would advise value investors look elsewhere in the bargain bin at this point in time.
Invest wisely, my friends.
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