Hasbro Inc. agreed to spend $4 billion to buy Entertainment One Ltd., the studio that makes the Peppa Pig and PJ Masks children’s shows, to gain a foothold in media rather than just licensing content.
The toymaker will pay 5.60 pounds per share in cash, 26% more than Thursday’s closing price. Entertainment One shares surged as high as 5.79 pounds, indicating some investors may hold off for a sweeter bid for the company, which also makes movies and music. The bonds had a record gain.
The deal, which would be Hasbro’s largest, marks a major expansion of the toymaker’s media efforts. It also raises the prospect that a rival bid could emerge, as competition heats up for content producers amid the growth in video-streaming. U.K. broadcaster ITV Plc bid 1 billion pounds ($1.2 billion) for Entertainment One in 2016, but the production company refused to enter talks.
“We would not rule out a competing bid for Entertainment One,” wrote Drew McReynolds, an analyst at RBC Dominion Securities. Still, the chance is low, as a rival bidder might not be able to achieve the $130 million revenue synergies that Hasbro is targeting.
The deal would give the toy company Entertainment One’s scripted and unscripted TV production and development capabilities, which include animated and live action shows. Hasbro has been a driving force in turning toy properties like Transformers into entertainment, but until now, it has mostly had to license its characters to studios to make films, said John Tinker, an analyst for Gabelli & Co.
“This can take their business to another level,” he said.
And after years of looking for an entertainment company to buy, including dalliances with Lions Gate Entertainment Corp. and DreamWorks Animation, Hasbro has finally locked up a deal that equips them to make larger films, he added.
The decline in the British pound made the valuation of Entertainment One, which is listed in London, more attractive, and the deal comes just days after Hong Kong’s Li family agreed to pay $3.3 billion for U.K. pub operator Greene King Plc.
The acquisition also expands Hasbro’s global reach, by adding a major international brand to its portfolio. Peppa Pig is a global success, with big viewership in China, and new brand Ricky Zoom has the makings of a hit, too, Tinker said. About half of Entertainment One’s revenue comes from outside the U.S.
“We see opportunities for emerging markets. It’s also heartening to see that eOne has gotten great traction in markets like China for Peppa,” Hasbro Chief Executive Officer Brian Goldner said in a call with analysts following the deal’s announcement. He added the tie-up gives the company “a real opportunity for a beachhead that can go in China for many years to come.”
Hasbro plans to plug these characters into a brand-building infrastructure that has turned dormant properties like My Little Pony into massive revenue generators.
Hasbro shares fell 4% to $109.80 at 4:44 p.m. in late trading in New York. The stock has gained 41% so far this year.
Hasbro executives said share buybacks will be halted and that cash will instead be allocated to paying down debt. The company will maintain its dividend program.
Chief Financial Officer Deborah Thomas said the company wants to keep its investment grade rating and will look to finance the deal via term loans, bonds and proceeds from an equity offering of $1 billion to $1.25 billion.
More must-read stories from Fortune:
—Vietnamese egg coffee is taking North America by storm–but what is it?
—In Tesla-crazy Norway, the electric vehicle revolution is already here
—Greta Thunberg is shunning transatlantic flights. Should you?
—Some Apple laptops will be banned from flying, FAA says
—Listen to our audio briefing, Fortune 500 Daily
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.