(Bloomberg) -- DHX Media Ltd., the producer of popular children's television shows like Teletubbies and Caillou, is considering a sale after poor quarterly results contributed to a 30 percent drop in the share price in less than two weeks.
The Halifax, Nova Scotia-based company's board has initiated a strategic review focused on maximizing shareholder value, DHX said Monday in a statement. Possible outcomes could include the sale of some or all of the company, or a merger with another party.
DHX rallied after the stock resumed trading following a halt, gaining 5.5 percent to C$5.52 in Toronto after earlier falling as much as 4.2 percent. The shares are down 22 percent on the year.
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The company could fetch a mid-point valuation of C$8.55 a share in a takeover, Canaccord Genuity analyst Aravinda Galappatthige said in a note.
"Given the size of DHX's library, its production and distribution expertise and infrastructure plus a current positive operating environment, we believe there would be genuine demand," he wrote. "DHX Media can realize a substantial premium to current prices."
If DHX chooses to divest some assets, it could sell the Family Channel and a minority stake in online streaming service WildBrain for as much as C$100 million ($80 million), Galappatthige said.
Last week, DHX reported earnings per share and revenue that missed the lowest analyst estimate, sending the share price tumbling 16 percent in one day. Chief Executive Officer Dana Sean Landry said the results were "not acceptable," blaming Teletubbies' weakness in the U.S. market and the recent acquisition of the Peanuts and Strawberry Shortcake brands, which caused management to take its "eye off the ball."
The weak results turned the stock into a "show me" story with a relatively short time frame to turn it around given the company's high debt levels, BMO analyst Tim Casey said in a note following the company's fiscal fourth-quarter results.
"In our view, management credibility has taken a real hit following the financial underperformance in late fiscal 2017 and the guidance for 2018," Casey said. "We doubt shareholders will give them the benefit of the doubt on success until there is demonstrative progress on deleverage."
To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net.
To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, David Scanlan, Chris Fournier
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